Changes to Charitable Giving Under the One Big Beautiful Bill Act

As the year comes to a close, many taxpayers are considering how to handle their end-of-year donations. The One Big Beautiful Bill Act (OBBBA), passed earlier this year, contains several key policies that will affect how many taxpayers itemize, and how itemizers may benefit from deducting charitable donations.

OBBBA Changes for Non-Itemizers

The OBBBA makes permanent and expands the TaxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. Cuts and Jobs Act’s (TCJA) temporary increase to the standard deductionThe standard deduction reduces a taxpayer’s taxable income by a set amount determined by the government. Taxpayers who take the standard deduction cannot also itemize their deductions; it serves as an alternative..

The expansion takes effect for tax year 2025, and the standard deduction will be $15,750 for single filers and $31,500 for joint filers in 2025 (and inflationInflation is when the general price of goods and services increases across the economy, reducing the purchasing power of a currency and the value of certain assets. The same paycheck covers less goods, services, and bills. It is sometimes referred to as a “hidden tax,” as it leaves taxpayers less well-off due to higher costs and “bracket creep,” while increasing the government’s spendin-adjusted thereafter). Tax Foundation estimates nearly 86 percent of taxpayers will take the standard deduction in 2026, an increase from projections under TCJA policy.

Taxpayers who take the standard deduction have not typically been able to deduct their charitable donations on their tax returns. The OBBBA, however, creates a permanent above-the-line deduction for charitable donations of $1,000 per filer who takes the standard deduction beginning in tax year 2026.

A similar policy was temporarily made available during the pandemic, supplying a $300 deduction per filer for non-itemizers. At that time, 29.4 percent of filers who used the standard deduction opted to take it, indicating that the OBBBA’s even larger deduction could be popular.

OBBBA Changes for Itemizers

For itemizers, the OBBBA introduces or makes permanent several deduction limitations.

First, it imposes a new floor on the deduction for charitable contributions. Starting in 2026, charitable donations below 0.5 percent of adjusted gross incomeFor individuals, gross income is the total of all income received from any source before taxes or deductions. It includes wages, salaries, tips, interest, dividends, capital gains, rental income, alimony, pensions, and other forms of income.
For businesses, gross income (or gross profit) is the sum of total receipts or sales minus the cost of goods sold (COGS)—the direct costs of producing goods (AGI) will not be deductible.

Take, for example, a taxpayer with $200,000 in AGI and $10,000 in charitable giving. The first $1,000 of the taxpayer’s charitable giving would not be deductible (calculated by multiplying their $200,000 of income by 0.5 percent), but anything over that amount—in this case, the remaining $9,000—would be.

Second, the OBBBA makes permanent the TCJA’s increase of the deduction limit for cash charitable contributions to 60 percent, while retaining the 50 percent limit for non-cash contributions. Under ordering rules, cash gifts are deducted before non-cash gifts, curbing the applicability of the higher limit for those who make both cash and non-cash donations.

Under the OBBBA, a new limitation on the tax benefit of itemized deductions for taxpayers in the highest tax bracket will take effect in 2026. The new rule limits the value of itemized deductions to 35 cents per dollar, rather than the 37 cents that’s normal for the top bracket. For purposes of the limitation, taxpayers determine their income by adding itemized deductions to AGI, raising the referenced income. Then they reduce their itemized deductions by taking 2/37 of the lesser of either their itemized deductions or their income that exceeds the 37 percent tax bracket.

For example, consider a taxpayer with an AGI of $800,000 and $100,000 in itemized deductions. They have an adjusted income of $900,000, with about $290,000 falling into the top bracket. The limitation applies to the lesser amount, so the taxpayer must reduce their itemized deductions by 2/37ths to $94,594.

Third (and finally), the new law temporarily increases the limitation on the itemized deductionItemized deductions allow individuals to subtract designated expenses from their taxable income and can be claimed in lieu of the standard deduction. Itemized deductions include those for state and local taxes, charitable contributions, and mortgage interest. An estimated 13.7 percent of filers itemized in 2019, most being high-income taxpayers. for state and local taxes (SALT) paid to $40,000. That higher limit phases down to $10,000 starting at $500,000 and ending at $600,000 of income. The limit value and phaseout threshold will increase by 1 percent per year through 2029, and the limit will return to $10,000 after 2029.

Some taxpayers may adapt their donation strategy to maximize tax benefits, for instance, by frontloading their giving into 2025 to avoid the new floor on charitable deductions and limitation on overall itemized deductions that both begin in 2026.

Other Changes

The OBBBA also added a new tax credit of up to $1,700 for charitable contributions to scholarship-granting organizations for elementary and secondary education scholarships. The credit is non-refundable, so it may reduce tax liability, but not below zero. It applies to contributions received beginning in 2027.

Separately, the OBBBA introduces a 1 percent floor on the deduction for charitable contributions made by corporations.

The Long View

The anticipated reduction in itemization, plus new limitations on the value of itemized deductions, will reduce the tax benefits of charitable giving for higher-income taxpayers. However, the new above-the-line deduction for non-itemizers will increase the tax benefits of charitable giving for taxpayers who previously did not have an incentive for giving. The above-the-line deduction for non-itemizers will reduce revenue by about $74 billion from 2025 through 2034, while the new floor on charitable deductions for individuals will raise $63 billion, indicating a near wash in terms of the overall revenue effects of these two changes. In the near term, the delay in new limitations is likely to drive frontloading of donations.