The One Big Beautiful Bill Act (OBBBA) introduces three major changes to charitable contribution deductions beginning with the 2026 tax year. Taxpayers should be aware of these updates as they plan future giving strategies.
1. Deduction for Non-Itemizers
Starting in 2026, taxpayers who do not itemize will be able to deduct charitable contributions directly from their adjusted gross income (AGI):
- $1,000 for single filers
- $2,000 for married-filing-joint taxpayers
Important limitations:
- Only cash contributions qualify.
- Donations to donor-advised funds or private foundations do not qualify.
2. New AGI Floor for Itemizers
For taxpayers who itemize, charitable contributions will now be subject to a 0.5% of AGI floor before they can be deducted.
Example:
- AGI: $100,000
- Donation: $10,000
- Deduction allowed: $9,500 (reduction of $500 = 0.5% of AGI)
In most cases, the disallowed portion is lost, unless the taxpayer is carrying forward contributions that exceed the annual contribution limit (generally 60% of AGI).
3. Cap on Tax Savings for High-Income Taxpayers
For those in the 37% tax bracket, charitable deductions will be limited to a maximum tax benefit of 35% beginning in 2026.
Example: Donations in 2025 vs. 2026
| 2025 | 2026 | |
|---|---|---|
| Adjusted Gross Income (AGI) | $600,000 | $600,000 |
| Charitable Donation | $100,000 | $100,000 |
| Reduction for 0.5% of AGI | – | ($3,000) |
| Net Deduction | $100,000 | $97,000 |
| Federal Tax Savings Rate | 37% | 35% |
| Total Federal Tax Savings | $37,000 | $33,950 |
Takeaway: These changes may significantly affect the tax benefits of charitable giving. Thoughtful planning now can help taxpayers maximize deductions before the new rules take effect in 2026.
Planning Considerations
Taxpayers, especially those in higher tax brackets or those who regularly make large charitable contributions, may want to consider accelerating their giving before the end of 2025.
- Bunching contributions into a single tax year could provide more favorable tax treatment.
- Reviewing current itemized deductions can help determine the most strategic approach.
Questions
Have questions about how these changes may impact your charitable giving or overall tax strategy? Contact the professionals at Smith Schafer today to discuss your situation and create a plan that works best for you.
