How Charitable Giving is Going to Change Under One Big Beautiful Bill Act
By Michael Bosma, CPA
When to make donations
The tax deduction for charitable giving is undergoing some changes next year thanks to the One Big Beautiful Bill Act, with a new above-the-line deduction available for 2026 and a Charitable Giving Max Benefit for 2026 and beyond.
For tax years starting after Dec. 31, 2025, there’s a $1,000 above-the-line deduction for single filers, or $2,000 for married couples filing jointly, who don’t itemize. However, the provision isn’t indexed for inflation and it’s not available for donor-advised funds or private foundations, or for those who itemize. If you are planning on making a year end 2025 gift, but will not be itemizing, make the gift in January.
For Those Who Do Itemize
For those who do itemize, starting in 2026, there’s a deduction floor allowing itemizers to only deduct 0.5% of their adjusted gross income. For taxpayers in the highest tax bracket of 37%, there’s also a deduction cap, capping the value of all itemized deductions, including charitable contributions, at 35%. However, the OBBBA’s “haircuts” on SALT and charitable deductions can result in both constraints and opportunities.
With these new charitable deduction limitations, when you stack them on top of the new overall limitation on itemized deductions, it really makes sense for people to evaluate their charitable giving before the end of this year.
Note that the limitation on the percentage of your income that can qualify for a charitable deduction is changing. There’s a limitation that we’ve always had around the percentage of your modified adjusted gross income that you can give away and be able to get a charitable deduction in any given year. That percentage for cash to 501(c)3 organizations is 60% of your income since the change in the tax law. It would have gone back down to 50%. All that means is you just carry forward the excess for a couple years, five to be specific, but you would eventually get it another year.
For those who do itemize deductions, there are also changes. Effective next year, in 2026, there’s a floor similar to what we have for medical, where you have a percentage of income that you have to exceed before you get the benefit of a deduction for that amount. It’s 0.5% of AGI is the limit, or the floor. For example, if I have a million dollars of income, the first $5,000 that I get for the charitable contribution, if I’m itemizing my deductions, will now be nondeductible, so I lose that $5,000 deduction.
The Haircut
Another change involves a kind of “haircut.” “The other thing that happens is, to the extent that you are in the top tax bracket, there’s now going to be a new overall limitation on itemized deductions, which is similar to the Pease limitation that we previously had before the Tax Cuts and Jobs Act. There’s a limitation that would kick in and limit the overall amount of all your itemized deductions. Well, that limitation’s formally gone. Basically, 5.14% is the haircut that you get.”
You may want to evaluate your long-term philanthropy planning and accelerate some of your charitable giving for 2025 if necessary. One strategy is to bunch deductions by itemizing several years’ worth of charitable contributions into one year, and then taking the standard deduction in the other years.
With “Max Cap” on charitable giving at 35%, 2025 might be the year to make significant gifts, especially of depreciated property. Some taxpayers are setting up Donor Advised Funds, others Private Foundations, others making gifts of an LLC interest. Couple with Charitable Remainer Trusts, tax planning abounds. Waiting until 2026, your charitable giving gets diluted ½% of AGI PLUS 5.4% if you are in the 37% tax bracket.