By,
Dobie Garner
OBBBA Effects on Charitable Contribution Deductions
In recent years, we have seen numerous changes to the legislation surrounding charitable contribution deductions, most notably with the 2017 Tax Cuts and Jobs Act. Earlier this year, the One Big Beautiful Bill Act (OBBBA) was signed into law, and with it brought significant additional provisions with tax impact on these deductions. The following highlights these changes and explains how taxpayers can best prepare to maximize their tax benefits from charitable contributions and avoid any potential pitfalls as a result of this sweeping legislation.
Unarguably, the most beneficial change to the charitable contribution rules for 2026 for many taxpayers is that individuals who do not itemize deductions will now be able to deduct up to $1,000 ($2,000 if married filing jointly (MFJ)) for cash contributions to public charities. Since a vast majority of taxpayers do not meet the threshold to itemize deductions, this provision allows them to receive the tax benefit of a charitable contribution without itemizing. Additionally, OBBBA raised the standard deduction threshold, making it harder to itemize. In 2026, the standard deduction threshold, or otherwise the amount of itemized expenses you would need to be allowed to itemize, increased from $15,750 to $16,100 ($31,500 to $32,200 if MFJ). The increase to this threshold is even higher for seniors age 65 and over due to an additional deduction provided to this demographic, also implemented as part of OBBBA.
Now for the less favorable news, albeit valuable knowledge for tax planning! The 60% of adjusted gross income (AGI) limitation for cash contributions to public charities did not change with OBBBA. However, individuals who do itemize are now subject to a new floor on contributions equal to 0.5% of AGI. In other words, contributions are only allowed to be deducted to the extent they exceed 0.5% of AGI up to the 60% of AGI limitation. Unused contributions may be allowed to be carried forward 5 years, but the rule on this is nuanced. Only contributions disallowed by the 0.5% floor that are also subject to the percentage limitation (e.g., 60% AGI) can be carried forward. If the only limitation is the floor, the disallowed amount is lost.
Additionally, there is a new tax rate benefit limitation for individuals in the highest tax bracket (37%). The tax benefit for these individuals is capped at 35% of taxable income. This means, for example, if a taxpayer makes a $100,000 charitable contribution in 2026, the tax benefit is capped at $35,000 rather than $37,000.
So, with the ever-evolving nature of legislation surrounding charitable contributions and the tax benefits derived thereof, one might naturally ask, “So what does all this mean for me?” or “How can I best plan to continue to benefit from my donations?” Fortunately, we’re here to help answer these important questions.
First and foremost, it may be wise to accelerate contributions into 2025 rather than waiting until 2026. This strategy doesn’t apply to everyone, but for taxpayers who did not make significant contributions in 2025 in anticipation of donating heavily in 2026, this could be a very beneficial tax strategy. Make those contributions you were planning for early 2026 by year-end 2025 instead and you will receive the full tax benefit for those versus being subject to the new limitations! Another thing to keep in mind is if your income is consistent year over year, compare your adjusted gross income to the new 0.5% floor limitation and consider if it still makes sense to donate from a tax perspective. In other words, if you expect your AGI to be roughly $500,000, you will need at least $2,500 of charitable contributions during the tax year before your charitable contributions kick in as an itemized deduction. Keep in mind the $1,000 non-itemizer deduction ($2,000 if MFJ), but if you know you will be itemizing anyway, you will not receive this benefit and will need to know how much you must donate to receive a tax benefit, or if it’s even worth doing so.
Other tax strategies to maximize your tax savings on charitable contribution deductions include donating through vehicles such as a donor advised fund (DAF), non-grantor trust, charitable remainder trust (CRT), and charitable lead trust (CLT), to name a few. Donor advised funds allow you to donate appreciated publicly traded securities (i.e. stocks, bonds, mutual funds) to the fund to be distributed to charities of your choice. A couple of significant benefits of doing this versus selling stock in your personal portfolio and donating cash proceeds are that you get to claim a deduction for the fair market value of the security donated, and you avoid paying the long-term capital gains tax you would have incurred if sold from your personal investment portfolio. These benefits can combine to create significant tax savings opportunities.
Non-grantor trusts allow you to make charitable contributions, provided there is specific language within the trust documents allowing for charitable contributions from the trust. The primary benefits of donating from a non-grantor trust are that they are not subject to the AGI-based limitations that individual contributions are subject to and they can provide significant additional tax benefit since the maximum 37% tax rate kicks in at a much lower level of income than for an individual ($15,650 in 2025). Thus, assuming the trust has more than $15,650 in charitable contributions in 2025, the trust would receive a 37-cent tax break per dollar donated above this amount, up to the amount of the trust’s gross taxable income.
Charitable remainder trusts allow you to transfer appreciated assets to a trust in return for an income stream from the trust for a set period or for your remaining entirety of life. You would receive a tax deduction at the time of donation for the present value of the remainder interest that will eventually be passed to charity. While the deduction is still subject to OBBBA AGI thresholds, another tax advantage is that the trust can sell the appreciated assets within the trust at fair market value for reinvestment within the trust, which defers capital gains on the trust assets. The income stream from the trust is also an added benefit for the donor/transferor. Charitable lead trusts are similar to charitable remainder trusts; however the initial income interest goes to the charity as opposed to the donor, and the remainder assets go to noncharitable beneficiaries (such as the donor’s heirs). There are some complexities outside the scope of this article regarding the deductibility of assets for tax purposes as it relates to CLTs, which is why it is critical to speak with your respective tax and financial advisors prior to setting up this or any one of these vehicles for charitable deduction purposes to determine which structure is best for you.
Another consideration for owners of closely held businesses is to utilize other ways of giving to your favorite charitable organizations that can be written off as other expense line items. When a charitable organization hosts an event, you can give them money to support the cause and in return receive brand promotion from the hosting organization (i.e. on t-shirts, placards, etc.) This would be considered sponsorship or advertising, and if expensed accordingly at the business level, it would result in a 100% deduction, hence bypassing the AGI limitations of charitable contributions. Also, if your employees volunteer at events for charitable causes, have them submit reimbursement claims for ordinary and necessary expenses such as gas, supplies, lodging, meals, etc. These reimbursed expenses are 100% deductible (50% for meals). The key takeaway here is to think outside the box, but within reason and justification in case of IRS examination.
Last but certainly not least, if you’re at least 70 ½ years old or will be in 2025-26, take advantage of qualified charitable distribution (QCD) for charitable donations from your IRA. Keep in mind QCDs must be made as direct transfers from your IRA to a qualified charity of choice. Speak with your financial advisor about initiating these transfers, and do not make the common mistake of writing a check from your bank account to give to charity as this will nullify the QCD. Up to $100,000 a year can be transferred annually as a QCD. There are significant tax benefits to this form of contribution, as they are not considered itemized deductions and therefore are not subject to the same AGI rules as mentioned earlier. The amount donated also reduces taxable income and can go toward satisfying annual required minimum distributions. QCDs also lower adjusted gross income, which has a waterfall effect on your ability to reduce or eliminate other taxes and potentially increase eligibility for other credits and/or deductions.
Now is the time to start planning your charitable contributions for the remainder of 2025 and beyond. As the legislation and rules around charitable deductions evolve and adapt, so must we. Utilizing the tools available and best suited to your unique financial situation is critical to maximizing this valuable tax benefit!