Happy Fall! As we enter the final quarter of the year, our attention turns toward those remaining items on our planning checklist for 2025. For many of us, making charitable gifts is high on the list of tasks to complete before the end of the year. The recently passed One Big Beautiful Bill Act (OBBBA), however, significantly reshapes the charitable giving landscape beginning in 2026. Like many sweeping tax reforms, it opens some doors while closing others. Because of these changes, charitable planning will require greater attention to timing and strategy this year and next.
Let’s break down the three major provisions of OBBBA that impact charitable giving.
- Below-the-Line Deductions for Non-Itemizers
For the first time since the temporary COVID-era relief measures, non-itemizing taxpayers will be able to claim a limited charitable deduction. Starting in 2026, taxpayers taking the standard deduction may deduct:
- Up to $1,000 for single filers
- Up to $2,000 for married couples filing jointly
There are, however, important caveats:
- The deduction applies only to cash gifts made directly to qualified charities.
- Contributions to donor-advised funds, supporting organizations, or private foundations do not qualify.
- The deduction is “below the line,” meaning it reduces taxable income but does not reduce adjusted gross income (AGI).
Note that since the Tax Cuts and Jobs Act of 2017 expanded the standard deduction, the number of taxpayers who itemize has dropped dramatically, reducing the reach of traditional charitable deductions. This new rule will allow deductions for those who give modest cash gifts to charity but tend not to itemize.
- New Limits for High-Income Donors
The most significant change for affluent taxpayers is a new ceiling on the value of itemized deductions. Beginning in 2026, itemized deductions—including charitable deductions—will be capped at 35% of income, even if the donor’s marginal tax rate is 37%.
Example:
- Current law: A taxpayer in the 37% bracket giving $1,000 to charity receives a $370 tax benefit.
- Under OBBBA: The same $1,000 donation produces only $350 in tax savings.
This change does not reduce the amount donors can deduct on their tax return—it reduces the value of those deductions at the margin.
For donors in the top bracket, the message is clear: gifts made before December 31, 2025, can still capture the full 37% tax benefit. Any large gifts planned for the next few years should be reviewed now for potential acceleration.
- A New Income Floor for Deductions
Another subtle but impactful change is the introduction of a 0.5% of AGI floor for itemizers. Beginning next year, only the portion of charitable contributions that exceeds 0.5% of adjusted gross income will be deductible.
Example:
- A couple with an AGI of $200,000 would see the first $1,000 of charitable giving ineligible for a deduction. Only amounts above $1,000 would qualify for a tax break.
- Corporations face a similar hurdle, with a 1% floor on deductions relative to taxable income.
This change should encourage donors to consider bunching strategies—making larger, less frequent contributions that clear the threshold rather than giving smaller amounts annually. But this must be balanced against the 35% cap on deductions, which further complicates planning.
Strategic Implications
Taken together, these provisions reshape the charitable giving calculus:
- For non-itemizers: OBBBA provides a modest new incentive to give, though it applies only to cash gifts and offers limited tax leverage.
- For high earners: The law reduces the marginal tax benefit of charitable deductions and imposes a new income floor. This diminishes the efficiency of charitable giving as a tax strategy compared to today.
- For all donors: Timing will matter. With these provisions taking effect January 1, 2026, there is a three-month window in 2025 to maximize deductions under current rules.
Final Thoughts
Charitable giving has always been motivated by more than tax benefits, but tax policy undeniably shapes donor behavior. The One Big Beautiful Bill Act both expands access for lower-income households and reduces incentives marginally for high earners. For donors at all levels, the best approach is intentional planning. For some, that will mean accelerating gifts into 2025. For others, it will mean rethinking the size, frequency, and structure of contributions in light of the new rules. As with any major tax reform, those that plan early are more likely to maximize the potential benefits while also meeting their financial goals.
Sources: https://www.horsesmouth.com/charitable-giving-under-obbba-3-big-changes-advisors-need-to-know
