The One Big Beautiful Bill Act (OBBBA), enacted in July 2025, introduces several provisions that will affect tax planning, compliance, and reporting across a wide range of situations. While the OBBBA introduces changes to several areas of the tax code, the changes relating to charitable contributions are particularly significant. Targeted amendments modify the rules governing deductibility of charitable contributions for both individual and corporate taxpayers, marking one of the most significant shifts to the charitable contribution landscape in recent decades.

Above the Line Deduction for Non-Itemizing Individuals

OBBBA introduces a significant change in which individuals who do not itemize deductions may claim an above-the-line deduction to income for qualified charitable contributions. Beginning in 2026, eligible taxpayers may deduct up to $1,000 of qualified charitable contributions ($2,000 for married taxpayers filing jointly) in addition to claiming the standard deduction. By allowing this adjustment, the OBBBA aims to encourage charitable donations among a broader range of taxpayers.

New AGI Floor for Itemized Charitable Deductions

Beginning in 2026, taxpayers who itemize will be subject to a new adjusted gross income (AGI) floor (a minimum threshold) for charitable contributions. Charitable contributions are now deductible only to the extent total contributions exceed 0.5% of AGI. As a result, a portion of charitable gifts will no longer be deductible. This limitation applies to all contribution types, reducing the tax benefit of smaller or routine charitable donations.

For example, consider an individual with an AGI of $500,000 who makes $50,000 in charitable contributions. In this instance, the first $2,500 (0.5% of $500,000) is nondeductible, leaving a deduction of $47,500. As a result, planning the timing and amount of charitable contributions may become more relevant, particularly in higher income years. It may be more advantageous to bundle donations in certain years to maximize the available deduction. Donor advised funds (DAFs) are one tool taxpayers may consider to be strategic with timing of donations while maintaining a consistent schedule of donations or grants to charitable organizations.

Permanent 60% Limitation for Cash Contributions

Charitable contributions of cash to public charities, including DAFs, continue to receive favorable treatment. The OBBBA made the 60% of AGI limitation for such contributions permanent, while the existing 20%, 30%, and 50% AGI limitations remain unchanged for cash gifts to certain organizations and noncash gifts such as stock. Cash gifts are deducted before noncash gifts under the ordering rules, which limits the overall amount of the deduction for charitable contributions. Due to the ordering rules and limitations, it’s imperative to plan the types of property donated and the recipient organizations, as well as the timing and amount of donations to maximum tax deductions.

Corporate Charitable Contribution Limitations

The OBBBA also introduces a floor applicable to corporate charitable contributions, while the existing cap on deductions remains. Beginning in 2026, corporate charitable contributions are deductible only to the extent that the total amount of contributions exceeds 1% of taxable income. However, charitable deductions remain capped at 10% of taxable income, consistent with previous law. Contributions below the applicable floor are not deductible in the year of the donation. Amounts disallowed may be carried forward for up to five years, allowing for future potential tax benefits, but only if contributions for the year exceed the 10% threshold. Otherwise, the amount disallowed under the 1% floor is permanently nondeductible and does not carry forward.

To illustrate the mechanics, assume a corporation has taxable income of $1,000,000. The charitable contribution floor would be $10,000 (1% of $1,000,000), and the cap would be $100,000 (10% of $1,000,000). Consider the following scenarios:

Scenario 1: The company makes $200,000 in charitable contributions. The deductible amount would be $90,000, calculated as the difference between the cap and the floor. The nondeductible amount of $110,000 could be carried forward, since total contributions exceed the 10% cap.

Scenario 2: The company makes $100,000 in charitable contributions. The deductible amount would still be $90,000, but the nondeductible portion would not be carried forward since the total charitable contributions did not exceed the cap.

Tax Planning Considerations

The OBBBA’S introduction of new floors combined with existing limitations reflects a shift toward stricter limits on charitable deductions for both individual and corporate taxpayers. Thoughtful planning and coordination will be crucial to ensure charitable giving is structured to maximize tax benefits while achieving a taxpayer’s donation objectives.

Daniela Arroyo and Maya Bloom are certified public accountants with Fort Worth-based JTaylor.