What Are the New Charitable Giving Rules After the One Big Beautiful Bill Act?

Overview of the One Big Beautiful Bill Act and Charitable Giving

As we close the door on summer, it’s nice to reflect on the exciting events that occurred. Long days outside with the family, vacations, and, of course, major tax law changes. The One Big Beautiful Bill Act (OBBBA) was passed by both chambers of Congress in late June and signed into law by President Trump on July 4, 2025. This law will introduce significant changes to the charitable giving space, and as we approach the end of the year, it may be beneficial to take action before it takes effect.

What Is the New Deduction for Non-Itemizers?

Starting with the 2026 tax year, taxpayers who do not itemize can still claim an above-the-line deduction for charitable gifts.

• Single filers: up to $1,000
• Married filing jointly: up to $2,000

This is similar to a smaller deduction that was granted under the CARES Act in 2020 and extended to 2021, but at a significantly higher level. Importantly, this new deduction does not apply to gifts to donor-advised funds or private foundations; therefore, donors should ensure that their gifts qualify.

Two New, Stricter Rules for Itemizers

Beginning in 2026, taxpayers who itemize must navigate two new limitations.

1. 0.5% AGI floor on charitable contributions
   • Only charitable contributions that exceed 0.5% of the taxpayer’s adjusted gross income (AGI) will be deductible.
   • Example: If a taxpayer has an AGI of $350,000, they must make charitable contributions of more than $1,750 to be able to deduct those contributions.

The good news is that the “lost” charitable contribution can be carried forward for use for up to 5 years if the contribution exceeds current AGI limitations based on the type of donated asset. The bad news is that it, too, would be subject to the 0.5% AGI floor each year, which means some tax benefit from charitable contributions is likely to be lost in future tax years.

1. Cap on itemized deductions for top-bracket taxpayers
   • For any taxpayer in the 37% bracket, itemized deductions are capped at 35%.
   • Example: If you gave $100 to charity, rather than getting a $37 tax benefit, you would now only receive a $35 tax benefit. The extra $2 is lost.

Combined Example of the New Itemizer Rules

These two new rules can combine to result in significant reductions in tax benefits for high-income taxpayers who are inclined to be charitable.

Consider a married couple filing jointly with an income of $850,000 who give $100,000 in cash to charity in 2026:

• First, the AGI limitation reduces their deduction by $4,250 (0.5% of $850,000), leaving a charitable deduction of $95,750.
• Next, because they have roughly $100,000 in income in the 37% bracket, the itemized deduction cap reduces their benefit further, resulting in a loss of approximately $5,405.
• Between the two limits, these taxpayers lose $9,655 of tax benefit.

What Is the New Federal Scholarship Credit?

Beginning in tax year 2027, a new federal tax credit will be available for cash contributions to scholarship-granting organizations (SGOs).

• Individual taxpayers: can receive a credit up to $1,700
• Married filing jointly: can receive a credit up to $3,400 (one credit per spouse)

States must opt in to this new program and identify qualified SGOs. Key requirements for SGOs include:

• Must be public charities (not private foundations)
• Must operate and grant only within one state
• Must provide scholarships to at least 10 students from different schools
• Must limit recipients to students from households earning no more than 300% of the area’s median gross income

If a state offers a similar tax credit, the taxpayer’s federal credit is reduced by any amount claimed on the state return.

What Are the New Corporate Charitable Deduction Limits?

The OBBBA also impacts corporations beginning in 2026:

• Corporate charitable contributions are deductible only to the extent they exceed 1% of taxable income (floor) and are less than 10% of taxable income (ceiling).
• Any excess can be carried forward for up to 5 years.

Why Consider Accelerating Gifts in 2025?

Given the new algebra donors may face in 2026 and beyond, accelerating charitable giving in 2025 may be wise. Larger gifts today are not subject to the new AGI floors and caps.

One effective strategy is “bunching” charitable contributions in a donor-advised fund.

• Example: If you plan to give $10,000 per year for 5 years, you may never exceed the standard deduction and would not get a tax benefit in 2025, and at most a $2,000 deduction in 2026 and beyond.
• By “bunching” $50,000 into a donor-advised fund in 2025, you could receive the full itemized deduction immediately. Over the next 5 years, you can grant $10,000 annually to your chosen charities, while the remaining funds can even be invested and potentially grow.

Customized Charitable Giving Strategies

At Mission Wealth, our Wealth Advisors and strategy team help our clients understand the power and impact of giving through annual proactive tax and charitable planning.

Ready to navigate the new charitable giving rules with confidence? Schedule a complimentary strategy session with a Mission Wealth advisor today to explore personalized solutions for your goals.