Scholarship Tax Credits: An Advisor's Reference

Sources for the table: IRC 25F[source], T.D. 10057[source], REG-117199-25[source], the IRS FSTC page[source], ORC 5747.73[source], and Ohio Department of Taxation guidance.[source]

Calculation rules worth checking

• State credit first, then the cap. The proposed regulations compute the credit as the lesser of (a) aggregate qualified contributions reduced by state credits allowed for them, or (b) $1,700, rather than capping first.[source]
• Ordering when gifts are mixed. If a state credit is allowed for cash that includes both designated and undesignated amounts, it is treated as allowed first for the undesignated amount.[source]
• Tax liability limit. The credit is limited by section 26(a) after other nonrefundable personal credits, with the excess carried forward up to five years.[source]
• No double benefit. A contribution for which the credit is allowed is not taken into account under section 170.[source] Undesignated gifts remain potentially deductible.
• Goods or services. Their value reduces the qualified contribution.[source]

Example (illustrative): an Ohio client gives $2,450 to an SGO that is both Ohio-certified and on Ohio's Section 25F list, designating $1,700. Ohio's $750 credit is treated as allowed for the undesignated $750, leaving the full $1,700 federal credit, subject to tax liability. Designating the whole $2,450 would also compute to $1,700 ($2,450 less $750, capped at $1,700), but how much of a designated amount remains deductible depends on the stacking order in the proposed regulations, so review that before advising a client to over-designate.[source]

Open questions and watch items

• The proposed regulations may change; comments were due December 1, 2026. The IRS has said taxpayers may rely on them for contributions beginning January 1, 2027.[source]
• The IRS SGO list had not been published as of October 23, 2026. States must submit 2027 lists by February 15, 2027.[source]
• Form 8525 and its instructions should be reviewed when the IRS releases them.[source]
• Ohio guidance says donor-paid costs don't count toward the Ohio credit.[source] ASN receipts list the gift and any optional processing-fee amount on separate lines, so you can decide how to treat the add-on.

Client talking points

• "A credit reduces your tax dollar for dollar, unlike a deduction, but it can't take your tax below zero."
• "If you're married, each of you gives in your own name to use both limits."
• "The federal credit starts with gifts made in 2027, and only for organizations on a state's SGO list. Check the IRS list before you give."
• "If you also want Ohio's credit, plan how much to designate for the federal credit."
• "You can name a school you care about, but you can't direct a gift to a specific child."

About ASN

American Scholarship Network is a 501(c)(3) public charity (EIN 42-1945763), certified by the Ohio Attorney General through May 18, 2027.[source] ASN is approved for Ohio's Federal Scholarship Tax Credit (Section 25F) SGO list. The IRS will publish a national SGO list that donors can check. Advisors who want plain-English materials for clients, or to refer clients or schools, can reach us below.