Charitable Giving Meets Sustainability: SALT Cap Strategies and the Future of the Secondary Market
Jessica I. Marschall, CPA - October 2024
As the sunset of the Tax Cuts and Jobs Act (TCJA) approaches in December 2025, taxpayers and their advisers are strategizing for the future. The TCJA, P.L. 115-97, introduced a $10,000 cap on state and local tax (SALT) deductions, significantly impacting taxpayers in high-tax states. While federal policymakers have debated potential changes, including increasing or eliminating the cap, no significant changes have been made to date. With the potential expiration of the SALT cap and other tax law provisions, savvy CPAs are focusing on how to help clients navigate this complex landscape and maximize deductions before and after the 2025 sunset.
Understanding the SALT Cap and Its Effects
Prior to the TCJA, individual taxpayers could deduct state and local taxes (income, real estate, and personal property taxes) without limitation. The $10,000 SALT cap, effective for tax years 2018 through 2025, has reduced itemized deductions for many taxpayers, especially those in high-tax states like New York, California, Connecticut, and New Jersey. According to IRS Statistics of Income (SOI) data, the average SALT deduction in these states decreased by over 50% from 2017 to 2018. This cap also coincided with the doubling of the standard deduction, leading to a sharp decline in the number of taxpayers itemizing their deductions—from 31% in 2017 to only 11% in 2018.
The Tax Foundation ranks New York and Connecticut as the states with the highest state and local tax burdens, which further exacerbates the SALT cap’s impact on taxpayers in these regions. As the cap remains in effect through 2025, it continues to limit itemized deductions for millions of Americans, raising the stakes for tax planning.
The Sunset of the TCJA and Charitable Giving Opportunities
The scheduled sunset of the TCJA at the end of 2025 presents a significant opportunity for charitable giving and broader tax planning. As key provisions of the TCJA, including the SALT cap and the expanded standard deduction, expire, many taxpayers who previously benefited from the standard deduction will return to itemizing their deductions. This shift, combined with the likely increase in tax rates and narrower brackets, means more taxpayers will benefit from the deductions available on Schedule A.
1. Schedule A Deductions Post-2025
Once the TCJA provisions sunset, Schedule A will again provide key tax planning opportunities for high-income taxpayers:
Journal of Accountancy Tax Planning for the SALT Cap - Oct 2024
Medical Expenses:
Medical expenses will remain deductible but only to the extent they exceed 7.5% of AGI. As most taxpayers struggle to meet this threshold, this deduction will continue to play a minor role.
State and Local Taxes:
With the $10,000 cap lifted, taxpayers in high-tax states will once again be able to fully deduct their state and local income, real estate, and personal property taxes, which could significantly reduce their tax liability.
Mortgage Interest Deduction:
The current restrictions on deducting home equity loan interest and mortgage interest related to underlying mortgage values will be removed, allowing for more generous deductions related to real estate ownership.
Charitable Contributions:
Charitable contributions will remain deductible up to 60% of AGI for cash donations, with a five-year carryforward. For non-cash donations, taxpayers can deduct up to 50% of AGI, also with a five-year carryforward.
2. The Secondary Market for Reusable Materials and Charitable Giving
As reuse retailers expand their capture and resale of building materials, appliances, fixtures, lighting, and furnishings, the secondary market is becoming more functional and efficient. Currently, used materials may be worth between 10-50% of the value of new materials, depending on availability and demand. However, as the market grows and supply becomes more predictable, values will likely increase, making donations of these materials to charitable organizations more attractive for taxpayers seeking deductions as the IRS defined Fair Market Value will increase as the underlying asset sales upon which the value is tethered increase with the market expansion.
This creates a two-fold benefit:
- Tax Deductions for Non-Cash Donations: Taxpayers donating reusable materials will be able to claim substantial charitable deductions, especially as the value of these materials increases. Under current rules, non-cash donations are deductible up to 50% of AGI with a five-year carryforward. With the potential expiration of TCJA provisions, this deduction becomes even more valuable for taxpayers who will likely see an increase in their overall tax burden.
- Financial Savings for Consumers: Consumers purchasing reused materials benefit from cost savings compared to new materials, with the added value of higher-quality vintage and antique wood components, which are often more structurally sound than modern counterparts. As more consumers recognize this value, demand for these materials will increase, further driving up their market value and incentivizing charitable donations.
3. Charitable Giving as a Tax Planning Tool
Given the higher tax rates and narrower brackets anticipated post-2025, charitable giving will be a key strategy for taxpayers looking to reduce their tax liability. By donating cash or appreciated non-cash assets, taxpayers can offset higher income levels and mitigate the effects of a more restrictive tax environment. The ability to carry forward unused charitable deductions for up to five years provides additional flexibility for long-term tax planning, particularly for high-income taxpayers.
As the value of non-cash donations increases, particularly in the realm of building materials and fixtures, more taxpayers will be inclined to donate to charities. This will not only help reduce their tax liability but will also contribute to the growing secondary market for reusable materials.
Inefficiencies in the Secondary Retail Market for Building Materials, Furniture, Fixtures, and Appliances
With the growing trend of charitable donations in the realm of building materials and fixtures, we must also examine the current inefficiencies that exist within the secondary market for these goods. Despite the increase in charitable donations, several structural issues have prevented the secondary market from functioning as smoothly and efficiently as it could.
Current Inefficiencies in the Market
- Lack of Centralized Supply: One of the most significant issues with the current secondary market is the fragmentation of supply. Consumers or businesses looking to source used building materials or appliances often face difficulties in finding sufficient volume, quality, or consistency from a single retailer or online platform. Unlike traditional retail markets where customers can purchase a large quantity of new materials from one supplier, the secondary market for reusable materials is characterized by decentralized sources, with inconsistent inventories scattered across various nonprofit and for-profit reuse retailers.
- Inconsistent Quality: Another issue plaguing the secondary market is the inconsistency in the quality of available materials. Vintage and reused goods can vary greatly in terms of condition, structural integrity, and aesthetic appeal, which creates uncertainty for consumers. Without standardized quality control, potential buyers may hesitate to invest in second-hand materials or furnishings, leading to a slower market turnover and lower demand.
- Logistical Challenges: The logistics of acquiring, refurbishing, and reselling used materials present another hurdle for this industry. For both retailers and consumers, transportation, storage, and preparation of these items often require more time, effort, and financial investment compared to purchasing new products. Limited access to reliable delivery systems further adds to the friction, deterring both suppliers and buyers from participating in the secondary market.
- Limited Consumer Awareness and Engagement: Many potential consumers and even professionals in the construction and remodeling industries remain unaware of the value and availability of high-quality reused materials. Those who do know of these materials may be hesitant to engage with them due to perceptions of inferior quality or concerns over finding appropriate matches for their project specifications. This lack of awareness, combined with perceived risks, reduces consumer engagement and demand.
- Valuation Uncertainty: Currently, there is no universally accepted method for valuing used building materials, furniture, fixtures, or appliances in the secondary market. As a result, prices can vary widely, leaving buyers unsure of whether they are getting a good deal and sellers uncertain about how to price their products competitively.
Variability in the Market
Variability exacerbates the inefficiencies in the market and hampers trust between buyers and sellers. As deconstruction appraisers, we are tied to the IRS Fair Market Value definition. Donors cannot fathom that windows that cost $2,500 each to install are valued at less than $500-$600.
Unlocking the Potential: Bringing More Property to the Secondary Market
As the secondary market continues to mature, there are significant opportunities to increase its overall efficiency and value through better market integration, standardization, and supply chain optimization. One of the most critical factors in this development is the expected increase in donations of building materials, appliances, and other property to charitable organizations. With the sunset of the TCJA and the return of more favorable tax treatment for itemized deductions, many taxpayers will be motivated to donate non-cash items to maximize their tax savings.
Increased Donations to Charities and Expanding Supply
The anticipated changes post-2025, including the lifting of the SALT cap and the halving of the standard deduction, will push more taxpayers into itemizing deductions on Schedule A. As a result, more people will seek out opportunities to donate non-cash assets—such as building materials, appliances, and fixtures—to charitable organizations in order to claim substantial deductions. Non-cash donations are deductible up to 50% of AGI, with a five-year carryforward, making these contributions highly attractive to individuals looking to reduce their taxable income.
As more property is donated to charities, the volume of reusable materials in the secondary market will increase substantially. Nonprofits, often operating reuse centers or partnering with for-profit retailers, will have a larger inventory of materials to resell, helping to alleviate one of the most significant inefficiencies in the current market: lack of centralized supply. This expanded supply will provide consumers with a more consistent selection of high-quality materials, appliances, and furnishings, increasing both consumer confidence and participation in the market.
Creating a Functional Supply and Demand Curve
In an efficient market, the forces of supply and demand interact in a way that drives equilibrium pricing—where the quantity supplied meets the quantity demanded at a stable price point. For the secondary market in building materials, furniture, fixtures, and appliances, this curve is still in its infancy, but significant progress can be made by addressing inefficiencies in supply, improving logistics, and increasing consumer demand. The increase in donations due to tax incentives will play a pivotal role in strengthening this supply side.
1. Expanding Supply
One of the keys to increasing the overall value of the secondary market is bringing more property to market. As more reusable materials become available—whether through construction deconstruction projects, donations to nonprofits, or strategic partnerships with renovation companies—the overall volume and quality of available goods will increase. More supply also creates greater choice for consumers.
2. Streamlining Logistics and Accessibility
Improving the logistics of collecting, refurbishing, and distributing reused materials will be essential to creating a functional market. This includes better partnerships between reuse retailers and logistics companies, more centralized warehouse spaces, and optimized delivery systems that make it easier for consumers to acquire used materials. Simplifying the process of accessing these goods can make the market far more appealing to both individual consumers and contractors.
3. Standardizing Valuation Methods
Establishing clear and consistent methods for valuing used materials and fixtures will build trust among buyers and sellers. By creating more transparency around pricing, the market can reduce uncertainties and increase transactional efficiency. This would also make it easier for reuse retailers and donors to determine the appropriate fair market value of donated property, thereby incentivizing more charitable donations and benefiting taxpayers seeking deductions for non-cash charitable contributions.
4. Increasing Consumer Awareness
Expanding consumer education efforts will be critical in driving demand for reused materials. By highlighting the quality, durability, and cost savings of vintage or salvaged items—particularly those made with higher-quality materials such as hardwood or antique fixtures—more consumers will turn to the secondary market as a viable alternative to new products. Greater market awareness can be driven through advertising campaigns, partnerships with home improvement retailers, and the promotion of success stories where reused materials have been integrated into high-quality construction and remodeling projects.
5. Building Market Infrastructure
As more reuse retailers, contractors, and nonprofits collaborate, it will be important to develop a more structured marketplace where buyers can browse, compare, and purchase items seamlessly. Creating online platforms that aggregate available inventory from multiple sources will make it easier for consumers to find what they need in one location. Additionally, the establishment of resale certification programs can help ensure that consumers receive high-quality goods, further increasing confidence in the secondary market.
Increasing Value Through Functional Market Dynamics
3. Standardizing Valuation Methods
As the secondary market matures and becomes more functional, the value of reusable materials will naturally increase. Currently, used materials often sell for a fraction of their new counterparts, with some items valued at only 10-15% of their new price. This discrepancy is largely due to inefficiencies in supply and demand, as well as consumer skepticism about the quality of second-hand goods.
However, as the market stabilizes and supply becomes more reliable through increased charitable donations and partnerships with construction and renovation industries, consumers will begin to recognize the real value of these materials—not just in terms of cost savings but also in terms of durability, craftsmanship, and sustainability. Vintage wooden components, for instance, are often
made from old-growth timber that is stronger and more durable than many modern alternatives. As more consumers experience the superior quality of these materials, demand will rise, further driving up their market value.
A well-functioning secondary market also has broader societal benefits. It reduces the waste of valuable resources, diverts materials from landfills, and supports a more sustainable economy. As the market becomes more efficient, reuse retailers and nonprofits will be better positioned to facilitate tax-deductible donations of reusable materials, providing a powerful incentive for property owners to donate and for consumers to purchase.
Integrating the Secondary Market into Tax Planning
3. Standardizing Valuation Methods
For CPAs and their clients, the growing efficiency of the secondary market creates unique tax planning opportunities. Charitable donations of building materials, furniture, fixtures, and appliances will become increasingly valuable as the market for these goods expands and prices rise. Under current tax law, non-cash charitable contributions are deductible up to 50% of a taxpayer’s AGI, with a five-year carryforward. As the value of these donated materials increases, the corresponding tax deductions will become even more substantial, providing a meaningful way for clients to reduce their overall tax liability.
Furthermore, with the sunset of the TCJA in 2025, more taxpayers will return to itemizing deductions on Schedule A, making non-cash donations even more valuable for high-income earners. This shift, coupled with the potential removal of the SALT cap and changes to mortgage interest deductions, will create a more favorable environment for maximizing tax savings through charitable contributions.
By understanding the evolving dynamics of the secondary market and leveraging these opportunities, CPAs can provide clients with valuable insights that not only benefit their tax position but also contribute to a more sustainable and efficient economy.
