The One Big Beautiful Bill Act of 2025 (OBBBA) made some changes to the charitable deduction.

Charitable Deduction for Non-Itemizers or People Who Take the Standard Deduction

Beginning in 2026, individuals who do not itemize deductions may claim a cash gift deduction of up to $1,000 for single filers and $2,000 for married filing joint filers. Individuals who take the standard deduction, now qualify for a charitable deduction.

If Itemize, Subject to 0.5% AGI Floor on Charitable Deductions

Beginning in 2026, individuals who itemize, are subject to a  0.5% adjusted gross income (AGI) floor.  That is, only charitable contributions in excess of 0.5% of your adjusted gross income (AGI) are deductible.  For example, if your AGI is $75,000, only charitable gifts that exceed $375 will qualify as a deduction. 

Ceiling or Cap on Itemized Deductions for High-Income Taxpayers

For those high-income individuals in the top 37% tax bracket, the tax benefit from all itemized deductions, not just charitable contributions, will be capped at a 35% tax rate. The value of itemized deductions for those in the highest tax bracket will be reduced to 35% of the deduction amount, down from the current 37%, The tax benefits received will decrease from 37 cents per dollar donated to 35 cents per dollar donated.

Planning Strategies

Timing of Contributions

Make Contributions in 2025

For planning purposes, it may be more beneficial for taxpayers who itemize to make contributions in 2025 when there is no floor in place, especially if a large donation is considered. Individuals who itemize and high income taxpayers may want to give more in 2025, to avoid the new floor and cap/reductions to the charitable deductions that start in 2026.

Going forward, it may be beneficial for taxpayers to consider making contributions in a year when AGI is lower, so that the floor amount is lower.

Charitable Bunching Strategy

This is a plan to make several years of donations in a single tax year. “Bunching” donations, making larger contributions in one year, to maximize the deductions under the new tax rules. 

Donor-advised funds (DAFs)

DAFs provide a way to contribute cash, stock, or other assets to get an immediate tax benefit in the year of funding. The funds contributed are invested and can grow tax-free. The donor can choose how they are invested and when the money goes to charities, immediately or over time.

Qualified Charitable Distributions (QCDs)

For clients age 70½ and over, qualified charitable distributions (QCDs) provide a way to donate to charity that avoids the new deductibility floor and ceiling. Generally, QCDs are donations to charity directly from an individual retirement account (IRA). QCDs can have benefits, especially for taxpayers who have required minimum distributions (RMDs).

If you have an individual retirement account (IRA) and are over the required minimum distribution age, consider qualified charitable distributions (QCDs). A QCD lets you transfer up to $100,000 per year directly from your IRA to a qualified charity without having to include the distribution in taxable income. It also counts toward your Required Minimum Distribution. If you do not itemize because the standard deduction is better, a QCD is especially attractive. And for those who itemize, it sidesteps the impacts of the 0.5% AGI floor and the 35% cap on tax savings.