The One Big Beautiful Bill Act (OBBBA), signed into law on July 4, 2025, represents one of the most significant reshapings of charitable giving tax deductions laws in recent years. Building upon the 2017 Tax Cuts and Jobs Act (TCJA), this comprehensive legislation introduces both opportunities and challenges that will fundamentally alter how individuals approach philanthropic planning.
With most charitable provisions taking effect January 1, 2026, estate planners and tax professionals must act swiftly to help their clients navigate this new landscape.
The legislation creates a complex web of incentives and restrictions that require careful strategic planning. While some provisions expand access to charitable deductions, others impose new floors and caps that could significantly impact the tax benefits of giving.
Understanding these changes is crucial for maximizing both philanthropic impact and tax efficiency.
Key Tax Changes Affecting Charitable Giving
Let’s break down the major tax changes under OBBBA and what they mean for your charitable giving plans.
35% Cap on Itemized Deductions for Top Bracket Taxpayers
One of the most significant changes under OBBBA is the introduction of a 35% cap on the tax benefit from charitable giving tax deductions for taxpayers in the highest income brackets.
Previously, charitable deductions provided tax benefits at the taxpayer’s highest marginal rate, which could be as high as 37% for top earners. Beginning in 2026, taxpayers in the 35% and 37% marginal tax brackets will see their charitable deduction benefits capped at the 35% rate.
This change creates an immediate planning opportunity for 2025. High-income donors considering significant philanthropic gifts may want to accelerate their giving to 2025 to maximize their deduction under the current 37% marginal rate before the new limitation takes effect.
For example, a taxpayer in the 37% bracket making a $100,000 charitable contribution would save $37,000 in taxes in 2025, but only $35,000 in 2026 and beyond.
Introduction of a 0.5% AGI Floor for Deductibility
OBBBA introduces a new floor for charitable deductions, requiring that itemized charitable contributions exceed 0.5% of adjusted gross income (AGI) before any deduction is allowed. This represents a fundamental shift from the previous system, where all charitable contributions by itemizers were deductible.
The practical impact varies significantly based on income levels:
- A taxpayer with $200,000 AGI must contribute more than $1,000 before any charitable deduction is available
- A taxpayer with $1,000,000 AGI loses the first $5,000 of charitable deductions
- A taxpayer with $10,000,000 AGI cannot deduct the first $50,000 of charitable contributions
Generally, individuals will permanently lose the disallowed amounts unless they have carryforwards, in which case the disallowed deduction will also carry forward for up to five years. This floor applies after other limitations and uses specific ordering rules to determine which contributions are reduced first.
Permanent 60% AGI Limit for Cash Contributions
OBBBA makes permanent the 60% AGI limit for cash contributions to public charities, a provision originally enacted by the TCJA that was set to expire after 2025. The law also clarifies that donors may combine cash and non-cash gifts to reach the 60% limit, resolving prior ambiguity about how this calculation should be performed.
This permanency provides certainty for long-term charitable planning strategies, particularly for donors who make substantial annual contributions or are considering large one-time gifts. The ability to combine cash and non-cash gifts offers additional flexibility in structuring charitable giving programs.
Above-the-Line Deduction for Non-Itemizers
Beginning in 2026, non-itemizers will be able to deduct up to $2,000 (married filing jointly) or $1,000 (all others) for cash gifts to 501(c)(3) public charities. This represents a significant expansion of charitable tax benefits, potentially affecting the estimated 100 million Americans who do not itemize charitable giving tax deductions.
However, this deduction comes with important limitations:
- The deduction excludes contributions to supporting organizations, donor-advised funds, and private foundations
- The deduction is limited to cash gifts made directly to qualified charities; donations of property or stock do not qualify
- Standard substantiation rules apply, requiring proper documentation for all contributions
Strategic Planning Opportunities
Accelerating Contributions Before 2026 to Maximize Deductions
The transition period between now and January 1, 2026, presents a critical window for strategic planning. Donors and their advisors should consider the timing of contributions, as accelerating donations in 2025, perhaps using a bunching strategy, may yield greater tax savings.
Important items to consider:
- Current and projected income levels for 2025 and 2026
- The impact of the 0.5% AGI floor on future deduction opportunities
- Whether large charitable contributions in 2025 could capture the full 37% tax benefit
- The benefit of avoiding the new deduction caps that begin in 2026
Leveraging Donor-Advised Funds for Bunching Strategies
A donor-advised fund may be worth considering for bunching strategies, where donors combine multiple years of planned charitable contributions into a single tax year. For example, if a client typically donates $12,000 each year to charity, but the client’s other deductions do not push them over the standard deduction, the client could give $36,000 (three years’ worth of gifts) to a donor-advised fund in 2025.
This strategy allows the donor to:
- Exceed the standard deduction threshold in 2025 and claim significant itemized deductions
- Avoid the 0.5% AGI floor that begins in 2026
- Maintain flexibility in making grants to specific charities over multiple years
- Take the standard deduction in subsequent years while still supporting their chosen charities
Evaluating Private Foundations for Legacy Planning
The higher gift and estate tax exemptions allow investors who have not used their exemptions to distribute more assets to family members through trust vehicles or wealth transfer strategies. With the passage of OBBBA, the scheduled reduction has been eliminated, and the exclusion is now fixed at $15 million per individual ($30 million per couple) for 2026, offering certainty for long-term planning.
This permanency creates new opportunities for integrating private foundation planning with overall estate strategies, particularly for families seeking to establish multi-generational philanthropic legacies while capturing current tax benefits.
DAF Contributions
Valuation and Documentation
For non-cash gifts, such as securities, the doner must ensure that the fair market value is properly substantiated. Contributions over $5,000 may require a qualified appraisal. Given the increased complexity under OBBBA, proper documentation becomes even more crucial for sustaining deductions during an audit.
Documentation requirements include:
- Contemporaneous written acknowledgments for all contributions over $250
- Qualified appraisals for non-cash contributions exceeding $5,000
- Proper valuation methods for complex assets like closely-held business interests
- Compliance with any special rules for specific types of charitable organizations
Tax Reporting
Maximizing Charitable Giving Tax Deductions
The OBBBA represents a fundamental shift in charitable giving taxation that demands immediate attention from estate planners, tax professionals, and their high-net-worth clients.
While the legislation creates new opportunities for some donors, particularly non-itemizers who will gain access to charitable deductions for the first time, it also imposes significant new limitations that could reduce the tax benefits of charitable giving for others.
The key to successful navigation lies in understanding that 2025 represents a critical year for planning. High earners may benefit from front-loading charitable giving in 2025, before tighter itemized deduction caps take effect in 2026. Advisors should act promptly to evaluate current giving strategies, assess the impact of new limitations, and implement appropriate planning techniques.
As we move toward 2026, successful charitable planning will require not only compliance with new rules but also creative strategizing to maximize both philanthropic impact and tax efficiency. The firms and individuals who initiate this planning process now, while the full benefits of the current law are still available, will be best positioned to navigate the new charitable giving landscape that OBBBA creates.
For more information, contact our experts today.
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