Breaking Down the OBBBA: Impacts on Charitable Contributions

The One Big Beautiful Bill Act (OBBBA) has adopted several changes that significantly impact charitable contributions. These changes are designed to expand the scope of charitable giving by encouraging participation from smaller donors, while limiting tax benefits for high-income individuals and corporations. The revised provisions reflect Congress’s stated objective of making tax-exempt giving more accessible.

CHARITABLE CONTRIBUTION CHANGES FOR INDIVIDUALS

A key development is the return of an above-the-line charitable deduction for taxpayers who do not itemize. Previously, non-itemizers did not receive any tax benefit for their charitable donations, which discouraged contributions from this group. With the new law taking effect for non-itemizers in 2026, single filers may deduct up to $1,000, and married couples filing jointly may deduct up to $2,000.

For taxpayers that do itemize, they have a new wrinkle to consider with their charitable contributions. Taxpayers will encounter a floor of 0.5% of their AGI (adjusted gross income) on their charitable deductions. This provision means that the first 0.5% of a taxpayer’s AGI in charitable gifts is non-deductible. For example, a taxpayer with a $200,000 AGI must contribute more than $1,000 ($200,000 x .005 = $1,000) before qualifying for a charitable deduction.

A new cap on the value of itemized deductions for high-income taxpayers is another significant change taking effect in 2026. Under this new rule, itemized deductions will only reduce an individual’s tax liability by 35% for those in the top 37% marginal tax bracket. So, regardless of their actual tax rates, the maximum tax benefit from charitable contributions is limited to 35%. This drop trims the deduction’s value by approximately 5.4%.

The OBBBA also makes permanent the 60% AGI limit for cash gifts to public charities. This limit was previously at 50% of AGI. This higher threshold can be beneficial, particularly to tax-exempt organizations reliant on substantial cash gifts from high-income donors. Their donors may be encouraged to give more generously despite the new deduction cap of 35%.

STRATEGIC PLANNING RECOMMENDATIONS FOR INDIVIDUALS

After analyzing the changes to charitable contributions by the OBBBA, individuals may want to consider the following charitable giving strategies:

1. Accelerate Donations Before 2026: Consider executing planned charitable contributions prior to 2026 to avoid the impending 0.5% AGI floor and 35% deduction cap, especially for significant gifts.
2. Utilize Donor-Advised Funds (DAFs): DAFs provide immediate tax deductions in the year of contribution, coupled with the flexibility to distribute grants to specific charities over time, supporting both financial planning and philanthropic objectives.
3. Bunching Contributions: If annual itemized deductions (most of which might consist of charitable contributions) are close to the standard deduction threshold, consider bunching multiple years’ worth of deductions, including contributions, into a single tax year to exceed the threshold. Then, claim the itemized deduction in the other years.
4. Donate Appreciated Assets: Contribute appreciated securities (held for over one year) or other assets directly to the charity (or perhaps to a DAF – see above). This allows donors to avoid capital gains taxes while securing a deduction equal to the fair market value of the security or other asset.
5. Qualified Charitable Distributions (QCDs): Individuals aged 70½ or older may satisfy their annual required minimum distribution (RMD) by making QCDs directly from their IRA to qualified charities. Using this QCD format generates a tax savings by excluding these amounts from taxable income. For 2025, the QCD limit is $108,000, potentially up to $216,000 for a married couple.

C CORPORATION CHANGES

Corporations will now face both a floor and a ceiling on their charitable contributions starting next year. Effective for tax years beginning after December 31, 2025, C corporations will only receive a tax savings if they contribute at least 1% of their taxable income. This floor is similar to the new 0.5% AGI floor for individuals (see above). The longstanding 10% ceiling or limitation on corporate charitable deductions remains unchanged.

NEW SCHOLARSHIP GRANTING ORGANIZATION (SGO) TAX CREDIT

This legislation also introduces, effective in 2027, a new federal tax credit for contributions to qualified scholarship programs. Taxpayers may claim a credit — rather than just a deduction — of up to $1,700 for donations to scholarship-granting organizations supporting K–12 private education. As credits reduce tax liability dollar-for-dollar, this offers greater value than deductions.

This article is part of our continued analysis of the OBBBA. Find all of our coverage here. We also invite you to contact Sikich’s tax advisors to optimize your charitable giving tax strategy.

About our Authors

Larry Johnson, CPA, MST, is a Senior Tax Manager with nearly 40 years of experience closely serving clients with their tax preparation and planning needs. Working with both businesses and tax-exempt organizations, Larry has deep expertise in tax reorganization, consulting and charitable giving/planning.

Daniel Lutz, CPA, MPA, is a Tax Principal with nearly 15 years of experience advising private companies and high net worth families on tax strategies and helping them to make sound financial decisions. Dan provides tax compliance, planning, consulting, and related wealth management services to support individuals, closely held businesses, and tax-exempt organizations. He also has expertise in trust and gift taxation.