Starting with the 2027 tax year, a donor in thirty states can give seventeen hundred dollars to one particular kind of charity and get every cent of it back. Give the same money to yours and it is a deduction — one that has had a floor under it since January.

You are about to write next year’s appeal calendar. Most development shops do it in September, off this year’s numbers, and the assumption underneath the whole exercise is that a gift to you and a gift to any other charity in town carry the same tax treatment. That assumption expires in five months.

There is a new section of the tax code, § 25F, enacted last July and switching on for the 2027 tax year. It creates a federal tax credit — not a deduction — for gifts to scholarship granting organizations. Here is the operative sentence.

A deduction reduces the income you are taxed on. A credit reduces the tax. For a donor in the 24 percent bracket, $1,700 deducted is worth about four hundred dollars; $1,700 credited is worth seventeen hundred. It is not a better deal — it is a different instrument.

It is nonrefundable, so it cannot take a donor below zero tax. But if they cannot use it all in one year, § 25F(f) carries the unused portion forward for five years, first-in first-out. And § 25F(b)(2) reduces it by any state credit they claim on the same gift, which matters in the many states that already run their own scholarship credits.

Now the part I have not seen anyone write about, and the reason this edition exists.

Section 170 is the charitable deduction. That sentence removes the credited gift from it entirely — and it has a second effect that follows from a different provision that took effect this January.

Since tax year 2026, itemized charitable deductions carry a floor: § 170(b)(1)(I) allows the deduction “only to the extent that the aggregate of such contributions exceeds 0.5 percent of the taxpayer’s contribution base for the taxable year.” A donor with a $300,000 contribution base gets nothing for their first $1,500 of giving. They have to clear the floor before your gift does any work at all.

Put the two together. A donor gives $1,700 to a scholarship organization and $1,000 to you. The $1,700 is credited, which means — by the plain words of § 25F(e) — it is not a charitable contribution for § 170 purposes. So it is not in the aggregate that gets tested against the floor. It does not help clear it. Your $1,000 has to climb over the whole 0.5 percent by itself.

The same donor. The same year. The same $2,700 out the door. And the two gifts do not live in the same tax system anymore.

The thirty, in the IRS’s own order: Alabama, Alaska, Arkansas, Colorado, Florida, Georgia, Idaho, Indiana, Iowa, Kansas, Kentucky, Louisiana, Mississippi, Missouri, Montana, Nebraska, Nevada, New Hampshire, North Dakota, North Carolina, Ohio, Oklahoma, South Carolina, South Dakota, Tennessee, Texas, Utah, Virginia, West Virginia, Wyoming. Three of them — Kansas, Kentucky and North Carolina — were not on the list in early June.

Kept honest, carefully. The interaction between § 25F(e) and the 0.5 percent floor is my reading of the two texts, not something the IRS has stated. The statutes say what I quoted; no published guidance addresses what a credited gift does to the floor calculation, and a tax adviser could reasonably read the sequencing differently. Treat it as the question to ask, not the answer to give. The effective-date wording is unusual and I have not smoothed it. Section 70411(c)(1) applies § 25F to taxable years ending after December 31, 2026 — not “beginning after,” which is the more common formula. For calendar-year individuals the two coincide, which is why the IRS page says “beginning Jan. 1, 2027,” but the statutory test is the one I quoted. The thirty states have made ADVANCE elections only. Under Rev. Proc. 2026-6 that election has to be perfected by submitting an actual list of scholarship organizations, and § 3.02 of that procedure warns that “a failure to submit the list by the deadline would not meet the statutory requirements, and, as a result, no organization in that State would qualify as an SGO under § 25F for calendar year 2027.” No state has perfected yet, and the final deadline does not exist in any published document — Rev. Proc. 2026-6 defers it to future guidance that has not been issued. Anyone quoting you a date for it is guessing. The 0.5 percent is of “contribution base,” a defined term meaning adjusted gross income computed without regard to any net operating loss carryback — close enough to AGI for planning, not identical, and my dollar examples treat them as the same. Amounts denied by the floor are not always lost; § 170(d)(1)(C) carries some forward. The bracket arithmetic is illustrative — a 24 percent bracket on a $1,700 deduction, and only if the donor itemizes and has already cleared the floor. I have not mentioned the new limit on the value of itemized deductions for top-bracket donors, because the statute expresses it as a two-thirty-sevenths reduction rather than the “35 percent cap” you will see quoted; the effect is real for your largest donors and the shorthand is not statutory language. None of this is tax advice, I am not a tax adviser, and your donors’ situations turn on facts I cannot see.

Sources (primary, verified today): the enrolled text of Public Law 119-21 — § 70411 (creating IRC § 25F, 139 Stat. 215–218), § 70424 (amending § 170(p), 139 Stat. 235) and § 70425 (adding the 0.5% floor at § 170(b)(1)(I), 139 Stat. 235–237) — read from the govinfo PDF of the public law as signed July 4, 2025. Codified text cross-checked at 26 U.S.C. § 25F, § 170 and § 63. Procedural guidance: Rev. Proc. 2026-6, 2026-2 I.R.B. 314 (the exclusive procedure for a State’s Advance Election, on Form 15714), and Notice 2025-70, 2025-50 I.R.B. 773. The participating-state list and its “as of July 24, 2026” stamp were read from the IRS Federal Scholarship Tax Credit page, whose footer reads “Page Last Reviewed or Updated: 27-Jul-2026” — a different date from the as-of stamp, and I have not conflated them. Every quotation above was read from the statute or the guidance PDF itself. No trade coverage supplied a fact in this edition.

You're about to write next year's appeal calendar. There's an assumption underneath it that expires in five months.

The assumption: a gift to you and a gift to any other charity in town carry the same tax treatment.

Section 25F was enacted last July and switches on for the 2027 tax year. It creates a federal tax CREDIT — not a deduction — for gifts to scholarship granting organizations.

Verbatim, § 25F(b)(1):

"The credit allowed under subsection (a) to any taxpayer for any taxable year shall not exceed $1,700."

A deduction reduces the income you're taxed on. A credit reduces the tax. For a donor in the 24% bracket, $1,700 deducted is worth roughly $400. $1,700 credited is worth $1,700.

It's nonrefundable, so it can't push a donor below zero. But § 25F(f) carries unused credit forward five years, FIFO. And § 25F(b)(2) reduces it by any state credit claimed on the same gift.

Now the part I haven't seen anyone write about.

§ 25F(e), the entire subsection:

"DENIAL OF DOUBLE BENEFIT.—Any qualified contribution for which a credit is allowed under this section shall not be taken into account as a charitable contribution for purposes of section 170."

Section 170 is the charitable deduction. That sentence removes the credited gift from it completely.

And there's a second effect, because of something that took effect this January.

Since tax year 2026, itemized charitable deductions carry a floor. § 170(b)(1)(I) allows the deduction "only to the extent that the aggregate of such contributions exceeds 0.5 percent of the taxpayer's contribution base for the taxable year."

A donor with a $300,000 contribution base gets nothing for their first $1,500 of giving.

Put the two together.

A donor gives $1,700 to a scholarship organization and $1,000 to you. The $1,700 is credited — so by the plain words of § 25F(e), it is not a charitable contribution for § 170 purposes. It isn't in the aggregate tested against the floor. It doesn't help clear it.

Your $1,000 has to climb over the whole 0.5% by itself.

Same donor. Same year. Same $2,700 out the door. Two different tax systems.

The IRS lists 30 states with advance elections as of July 24, 2026 — up from 27 in early June. Kansas, Kentucky and North Carolina joined in between.

One piece of good news in the same law, and it cuts your way: § 170(p) now allows non-itemizers a deduction "not in excess of $1,000 ($2,000 in the case of a joint return)," up from $300/$600, permanently, for tax years beginning after December 31, 2025. That's live RIGHT NOW for the appeal you're writing this autumn. For the ~90% of households taking the standard deduction, it's the first time since 2021 a small gift has had federal tax value. Say it out loud in your year-end letter.

Two cautions on that one: it is NOT above-the-line — it sits at § 63(b)(4), on top of the standard deduction, and doesn't reduce AGI. And it's cash only, not to a § 509(a)(3) supporting organization.

Four things I'd do:

1. Check whether your state is on the IRS list. Fifteen minutes. If it is, a competing ask exists in your market from January.

2. Treat December 2026 as the last appeal before the credit exists. The statute applies to taxable years ENDING after December 31, 2026. That's a date in the enacting section, not manufactured urgency.

3. Re-run your mid-level donors against the floor before setting 2027 ask strings. Someone with a $400,000 contribution base needs to give $2,000 before a dollar is deductible. If your standard ask sits near that line, the ask itself decides whether the gift is deductible.

4. Don't tell donors what the credit does to their return. Know it exists, name it accurately, stop being surprised. A major donor who heard this from their accountant will notice which development officer knew.

Keeping it honest: the interaction between § 25F(e) and the 0.5% floor is MY reading of the two texts. No published guidance addresses it. Treat it as the question to ask your CFO, not the answer to give. The 30 states have made ADVANCE elections only — Rev. Proc. 2026-6 § 3.02 warns that failing to perfect with an actual SGO list means "no organization in that State would qualify as an SGO under § 25F for calendar year 2027." No state has perfected yet, and the final deadline doesn't exist in any published document — it's deferred to future guidance. Anyone quoting you a date is guessing.

Also: "contribution base" isn't quite AGI, my bracket math is illustrative, and I'm not a tax adviser.

Sources: P.L. 119-21 §§ 70411, 70424, 70425 (govinfo enrolled text); 26 U.S.C. §§ 25F, 170, 63; Rev. Proc. 2026-6; Notice 2025-70; IRS Federal Scholarship Tax Credit page.

FIRST SOURCE · one verified original-source finding, composed for one reader · this edition: nonprofit fundraising — written for the development directors and annual-fund staff who will set 2027 ask strings this autumn against a tax code that changed underneath them