A New Era for Charitable Giving
The One Big Beautiful Bill Act (OBBBA) brings significant changes to charitable deduction rules for individuals, effective January 1, 2026. Whether you itemize or take the standard deduction, these updates may impact your giving strategy and tax planning. Here’s what you need to know—and how to maximize your benefits.
Background on Charitable Deductions
Before OBBBA, taxpayers could deduct charitable contributions if they itemized deductions, subject to limits based on their adjusted gross income (AGI). The 2017 Tax Cuts and Jobs Act (TCJA) temporarily increased the AGI limit for cash donations to public charities from 50% to 60% through 2025. However, the higher standard deduction under TCJA led many taxpayers to stop itemizing, reducing the number of people who benefited from charitable deductions.
Key Charitable Deduction Changes for 2026 and Beyond
The OBBBA permanently extends the 60% AGI limitation for cash contributions to qualified public charities. This ensures that high-income donors can continue to deduct a larger portion of their income when giving to charity. Here are some other changes:
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Above-the-Line Deduction for Non-Itemizers
Starting in 2026, taxpayers who do not itemize can deduct cash donations to qualified public charities:
- Single filers: Up to $1,000
- Married filing jointly: Up to $2,000
Here’s an example:
- Non-Itemizer in 2026:
AGI: $60,000; Donates $1,500 cash to a qualified charity
Deduction allowed: $1,000 (capped)
Tax savings (22% rate): $220
This adjustment to AGI provides a meaningful incentive for charitable giving, even for those who don’t itemize. However, there are some important exclusions: Donations to donor-advised funds (DAFs) and private non-operating foundations do not qualify for this deduction. Only direct cash gifts to public charities are eligible.
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New Floor for Itemizers
For itemizing taxpayers, a new 0.5% floor applies to charitable deductions beginning in 2026. This means:
- Only charitable contributions above 0.5% of your Adjusted Gross Income (AGI) are deductible.
- This floor applies only to contributions made in tax years after 2025.
Here’s an example:
- Itemizer in 2026:
AGI: $200,000; Donates $1,500 cash
Floor: 0.5% × $200,000 = $1,000
Deductible amount: $500
Tax savings (24% rate): $120
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Cap for High-Income Earners
For taxpayers in the highest federal bracket, the tax benefit from itemized deductions—including charitable gifts—is capped at 35% (previously 37%). This cap applies to ALL itemized deductions, not just charitable contributions.
Here’s an example:
- High-Income Itemizer in 2026:
AGI: $1,000,000; Donates $100,000
Floor: 0.5% × $1,000,000 = $5,000
Deductible amount: $95,000
Tax benefit capped at 35%: $33,250
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Carryforward Treatment
Carryforward contributions from prior years will be subject to the new 0.5% AGI floor starting in 2026. For example, if you have a $55,000 carryforward and $100,000 in new gifts, the total deduction is reduced by 0.5% of your AGI before being allowed.
Practical Planning Strategies to Maximize Your Tax Benefit
These changes present both opportunities and challenges for taxpayers and advisors. When tax planning, consider:
- Bunching Contributions: Consider front-loading several years’ worth of donations into 2025 to avoid the new floor and ceiling.
- Donor-Advised Funds (DAFs): Funding a DAF in 2025 allows you to lock in current deduction rules, even if distributions to charities occur later.
- Qualified Charitable Distributions (QCDs): Taxpayers age 70½+ can donate directly from IRAs to public charities, bypassing the new limitations.
Track Donations Carefully
Especially for non-itemizers, keep records of all cash gifts to ensure you can claim the new above-the-line deduction.
Plan the Timing
If you’re considering a large gift, 2025 may offer better tax benefits before the new rules take effect.
Prepare Now for 2026 and Beyond
The One Big Beautiful Bill Act reshapes the landscape of charitable giving, making timing and strategy more important than ever. Whether you’re a business owner, high-net-worth individual, or everyday taxpayer, understanding these changes is essential for maximizing your tax benefits. Contact us today to schedule a personalized consultation and ensure your giving strategy aligns with the new rules.