For Financial Advisors

A New Tax Credit Worth Discussing With Your Clients

The federal scholarship tax credit under IRC Section 25F gives your clients a way to receive a dollar-for-dollar credit on their federal taxes and support students attending Tennessee schools.

What a Scholarship Granting Organization Does

A Scholarship Granting Organization, or SGO, is a nonprofit that collects charitable contributions and uses them to fund tuition scholarships for students. Tennessee SGO is a 501(c)(3) organization that serves as the link between donors, families, and K-12 schools. For a financial advisor, the SGO is the vehicle that turns a client contribution into a qualifying tax credit and a scholarship for a student attending a Tennessee school.

The Section 25F Credit, in Brief

Here are the points your clients are most likely to ask about.

Up to $1,700 per taxpayer

Section 25F is a dollar-for-dollar federal income tax credit for cash contributions to a qualifying scholarship granting organization — up to $1,700 per taxpayer each year, and up to $3,400 for a married couple filing jointly.

Limited to a client's tax liability

The credit is nonrefundable. It reduces a client's federal income tax dollar-for-dollar but cannot exceed their tax liability for the year. Any amount of the credit unused in a given tax year can be carried forward for up to five years.

Effective January 1, 2027

The credit takes effect for contributions made on or after January 1, 2027. Advisors can begin preparing clients now so they are ready when the program opens.

Available to clients in any state and any income level

Because Section 25F is a federal credit, it is not limited to Tennessee residents — clients in any state can contribute to Tennessee SGO and claim the credit. This credit is not reduced for high income earners and is fully available regardless of income level.

This information is general and does not constitute tax advice. Each client's situation is different, so please confirm how the credit applies before your clients act on it.

Want to read the law?

Section 25F was enacted by the One Big Beautiful Bill Act (Public Law 119-21). For advisors who want the primary sources:

Why Partner With Tennessee SGO

There will be more than one SGO your clients could give to. Here is what working with us involves.

Local focus

Tennessee SGO is based in Hamilton County and serves Tennessee families and schools. Contributions stay close to the communities these students live and learn in.

Built for compliance

We operate as a qualifying SGO under Section 25F, including the 90 percent scholarship spending requirement and the rules that keep contributions from being earmarked for individual students.

Segregated funds

Qualified contributions are held in a dedicated account and are not commingled with our non-qualified funds, so the money your clients give is tracked for its intended purpose.

Clear reporting

Donors receive the documentation they need at the time of their contribution, and our team is available to answer questions from you and your clients throughout the year.

Tennessee SGO is here to support financial advisors.

Three steps from first conversation to a claimed credit.

Introduce the program

Share the Section 25F credit with clients for whom charitable giving and tax planning already fit.

Present it with our materials

Walk clients through the opportunity using the explainer materials and tax-credit calculator we provide, so the benefit is clear.

Clients contribute and claim the credit

Clients make a qualifying contribution, receive their documentation, and claim the federal credit when they file.

Advisor FAQ

A few details your clients are most likely to ask about.

What happens if a client cannot use the full credit in one year?

Because the credit is nonrefundable, it cannot exceed a client's federal income tax liability for the year. Any unused amount carries forward for up to five years and is used oldest-first. The maximum credit in any single year is still $1,700 per taxpayer.

Can clients who live outside Tennessee contribute?

Yes. Section 25F is a federal credit, so it is not limited to Tennessee residents. Clients in any state can contribute to Tennessee SGO and claim the credit on their federal return.

Does a state tax credit affect the federal credit?

Because Tennessee does not have a state income tax, there is no state credit for contributions to SGOs; therefore, Tennessee taxpayers will receive a dollar-for-dollar credit on their federal return for their contribution. Some states have credits that apply toward state income tax for contributions to SGOs. If a taxpayer who resides in a state with a state credit for contributions to an SGO makes a contribution, the combined total credit (federal plus state) will not exceed the amount of the maximum federal credit. A client's federal credit is reduced only if they also claim a state tax credit for the same contribution.

Let's Talk About Working Together

If you advise clients — in Tennessee or beyond — and want to add the Section 25F credit to the planning conversations you already have, reach out to our partnership team. We are glad to walk through the details and answer your questions.