U.S. Senate Republicans are scrambling to push forward President Donald Trump’s sweeping tax cut and spending bill in the coming days, and one provision would have helped some givers avoid capital gains tax.
It was a proposal tucked within the “Big Beautiful Bill” that some tax policy analysts called unprecedented, because it called for a dollar-for-dollar federal tax credit for donations to private school voucher programs, capped at $5 billion per year nationwide.
The U.S. House of Representatives' tax plan, which is undergoing revisions in the Senate, would reduce the tax incentive for most charitable giving, while nearly tripling the tax incentive available to donors that fund free or reduced private K-12 schools, according to the Institute on Taxation and Economic Policy (ITEP).
The provision, which was, for now, struck from the legislation by the Senate Parliamentarian late Friday (more on the implications below), would also provide donors who contribute appreciated assets, like corporate stock, to Scholarship Granting Organizations an additional tax benefit: avoiding capital gains tax.
As initially drafted, the House GOP bill would reportedly have resulted in over $2 billion in capital gains tax avoidance over the next decade.
Here’s what you need to know about this potential tax break, including where the provision stands as the Senate prepares to vote on the mega bill.
What is a tax credit voucher?
The federal provision drafted by House Republicans, designed to reward individuals who make charitable donations to Scholarship Granting Organizations (SGOs), is a modified version of the proposed Educational Choice for Children Act.
SGOs are non-profit organizations that distribute donated funds to students via scholarships, often for private school tuition. The awards can be used to pay for tuition, books, and homeschooling costs.
How would the voucher tax credits work?
- In exchange for a donation to private K-12 school vouchers, taxpayers would get a dollar-for-dollar tax credit.
- The nonrefundable tax credit would be limited to a greater of $5,000 or 10% of your adjusted gross income (AGI) for the taxable year.
- As a bonus, individuals who donate their stock to an SGO wouldn’t have to pay capital gains taxes on any increase in the stock’s value.
- As noted, the House GOP bill would cap the tax credit at $5 billion each of the next four years, through 2029.
The concept would promote private school choice by using public funds to help families pay for private school tuition or homeschooling expenses. That includes religious schools, which most voucher students attend.
It’s also referred to as “universal school choice,” a policy that the Trump administration has advocated for. It also aligns with Project 2025, a conservative policy agenda created by the Heritage Foundation.
Who would qualify for the scholarships?
Under the GOP plan, Scholarship Granting Organizations would distribute donated money via scholarships to households earning at or below 300% of a given area’s median gross income.
It would also have to be for a qualified elementary or secondary education expense, including (but not limited to):
- Curriculum and curricular materials
- Books
- Fees for nationally standardized testing
- Online educational materials
- Tuition or fees for a private K-12 school and homeschooling expenses
Avoid capital gains tax under Trump's 'big bill'?
As initially drafted, the House version of Trump’s "big, beautiful bill" would have distributed $5 billion a year in federal tax credits for private school voucher donors each year.
All donors to private school voucher programs would receive a dollar-for-dollar tax break, but the bill would create a lucrative tax shelter for wealthy people who funnel pubic funds into private schools.
That’s because private school voucher donors who contribute corporate stock, for example, would avoid capital gains tax.
Overall, the capital gains tax avoidance would cost the federal government billions, ITEP estimates.
- The federal government could lose more than $2 billion in capital gains tax revenue over the next decade.
- That’s on top of the roughly $21.5 billion cost of the tax credit alone.
- Overall, the net revenue loss could amount to over $23.6 billion in 10 years.
States would also be impacted: The capital gains tax avoidance facilitated by the voucher credit in the House GOP version of the One Big Beautiful Bill Act would have hit nearly every state’s revenue over a decade.
In California, revenue could have been impacted by $176.6 million, New York’s revenue could be impacted by $86.8 million, while Massachusetts could see a loss of $29.4 million.
Other cuts to charitable donations
The dollar-for-dollar tax rebate for donors to private school voucher programs proposal is “unprecedented at the federal level,” ITEP analysts say, as no other charity has ever received that kind of allowance.
What’s troubling: The Republican-led House tax plan would cut charitable giving tax incentives for donors to most nonprofit groups while tripling the incentive to donors that fund private K-12 school vouchers.
- Under the House GOP tax plan, donors to children’s hospitals or other charities would receive no more than 35 cents in tax savings for each dollar donated, down from a maximum tax benefit of 37 cents.
- Additionally, the OBBBA stands to reduce the average benefit of itemized deductions for charitable giving by more than a quarter.
Some critics of voucher programs argue that public dollars should be used to boost spending in public schools, not to subsidize private education. The proposed private school voucher tax credit would create an indirect way of funding private schools with taxpayer dollars.
School voucher provision struck by Senate Parliamentarian
Update: Late Friday, the Senate Parliamentarian ruled that these provisions violate the so-called "Byrd Rule" (named after the late Sen. Robert Byrd). That rule prohibits the inclusion of certain types of provisions in a reconciliation bill.
As the Senate prepares to vote on the legislation, it remains to be seen whether lawmakers will attempt to revise the school voucher aspects to ensure compliance.
The One Big Beautiful Bill Act: What’s next
The U.S. Senate has set a goal of passing its version of Trump’s One Big Beautiful Bill Act by July 4, 2025.
As currently drafted, the major tax cuts and spending bill would add roughly $3 trillion to the debt through the next decade, and add nearly $5 trillion if temporary provisions from Trump’s Tax Cuts and Jobs Act (TCJA) are made permanent.
The proposed legislation also includes a variety of changes to family tax credits and education credits.
As reported by Kiplinger, there are other ways you can minimize your capital gains tax liability, like tax-loss harvesting, holding investments for more than one year, or taking advantage of tax-advantaged accounts like 401(k)s or an IRA.
Stay tuned for more updates on the OBBBA and how it can impact your finances, as this is a developing story.
