The OBBBA Changes to Charitable Giving
The One Big Beautiful Bill Act (OBBBA) introduced a lot of changes to the tax code, including a few changes to charitable giving that will affect a lot of charitable taxpayers. In some cases, these changes are a tax relief, but for others, there is a reduction in the tax benefit of those deductions.
The change that will affect the majority of taxpayers is extremely straightforward. If you take the standard deduction, you can now claim up to $2,000 for joint filers or $1,000 for single filers as an above-the-line deduction, so the benefit can be up to $2,000 multiplied by your marginal tax rate. For someone in the 35% marginal tax bracket, a full $2,000 deduction could reduce federal income taxes by $700. It’s not huge, but I also can’t remember a time that I’ve complained about saving $700.
This is a great benefit for many taxpayers, but there are a couple of important limitations to understand. First, the donations have to be cash donations to a qualified public charity; sadly, those donations of household goods to Goodwill don’t count. The other important warning is that donations to donor-advised funds (DAF) do not qualify for this deduction. If you’ve opened a DAF in the past and handled your charitable giving through it, it may be time to rethink that strategy. In short, you have to give cash to a qualified 501(c)(3), and donations of goods or services do not qualify. It’s important to remember that those two caveats only apply to the deduction for those who claim the standard deduction; taxpayers claiming itemized deductions are discussed below.
Now, for taxpayers who itemize deductions, there is a bit more to consider when thinking about their 2026 charitable giving plans. In the past, this likely didn’t affect as many people as it may now. With the new increase to the State and Local Tax deduction amount, more people will itemize their deductions, especially in high-tax states like California and New York.
The primary change is the new 0.5% floor for charitable giving. A floor is simply a minimum threshold. In 2026, you will only be able to claim charitable deductions that exceed 0.5% of your contribution base.
You may be wondering, “What in the world is the contribution base?” The contribution base is a calculation that takes into account your adjusted gross income (AGI) without regard to any net operating loss carryback. For simplicity, we will just use AGI and illustrate an example. If your AGI is $500,000, then you would only receive tax benefits for charitable contributions in excess of $2,500. So if you made contributions of $10,000, only $7,500 of that amount would qualify for a tax deduction. Your contribution base is $500,000 in this case, and your charitable “floor” is $2,500. To go one step further, if you were in the 35% tax bracket, rather than getting $3,500 in tax savings, you would only be able to receive $2,625.
This next part is a bit in the weeds, but I think it is important to explore. Even before the new 0.5% floor, charitable contributions have been limited to a ceiling based on your AGI. Most commonly, they’ve been limited to 60% of your AGI for cash contributions and 30% of your AGI for capital gain property donations (like stock). If you were to contribute over these limits, the excess charitable contributions would be eligible to be carried forward for up to 5 years. This is still the case.
One important nuance under the new rules is that if you contribute over the AGI limitation, your excess contribution still carries forward. But in addition to that, the portion disallowed by the 0.5% floor also carries forward. However, if you do not exceed the AGI limitation, the 0.5% of disallowed contribution does not carry forward; it is lost permanently.
In addition to all of that, taxpayers in the top federal tax bracket may see the value of certain itemized deductions effectively capped at a 35% tax benefit, but we won’t go into those details in this article.
With those changes in mind, I just wanted to list a couple of simple ideas to help plan for these new changes:
Charitable contribution stacking: rather than give to charity in small increments every year, consider saving your contributions until you are far clear of the 0.5% floor and then make the donations in that one year. This allows you to ensure you get over that hurdle, and when coupled with some more tax planning, you can plan this around potential high-income years.
Qualified Charitable Contributions (QCD): If you are at the age where you have begun taking RMDs from your retirement accounts, and are charitably inclined, QCDs can be an extremely tax-efficient giving strategy. The 0.5% hurdle does not apply to QCDs, and QCDs come directly out of your IRA, go straight to charity, and taxes are never paid on that distribution.
Charitable giving is great, and can also lead to some great tax benefits. If you are charitably inclined, it’s important to make sure that you understand these changes and plan around them. Otherwise, you may be leaving tax savings on the table.