The recently enacted One Big Beautiful Bill Act (OBBBA) has ushered in a wave of reforms to the U.S. tax code, including sweeping changes to charitable contribution deductions. These changes will take effect in the 2026 tax year. Whether you are a donor seeking to maximize your tax efficiency or a nonprofit professional aiming to adapt your fundraising strategy, understanding these new provisions is essential.

Key Individual Charitable Deduction Changes in the OBBBA

Universal Charitable Deduction Expanded and Made Permanent for Non-Itemizers

OBBBA makes the universal charitable deduction for non-itemizers permanent and significantly more generous. Individuals can now deduct up to $1,000, and married couples filing jointly up to $2,000, even if they do not itemize deductions. The deduction applies to cash donations made to qualified 501(c)(3) public charities. Contributions to donor-advised funds and private foundations are excluded.

Adjusted Gross Income Cap Increased for Cash Contributions (Itemizers)

The maximum AGI cap for charitable deductions remains at 60% for cash contributions to public charities. This cap was previously set to expire but has now been made permanent starting in 2026. Contributions exceeding this limit will be carried forward for up to five years.

New 0.5% Adjusted Gross Income Floor (Itemizers)

A new 0.5% Adjusted Gross Income (AGI) floor will be implemented for charitable contribution deductions claimed by individuals who itemize deductions. For example, if your AGI is $500,000, the first $2,500 (0.5% of AGI) of charitable contributions will not deductible — in this example, only contributions above $2,500 (in total) will qualify.

Reduced Deduction Value for High Earners (Itemized)

The value of itemized deductions will be capped at a 35% tax rate for those in the highest tax bracket (37%). This means if you have a $10,000 deduction for a donation, it will result in a $3,500 tax savings, instead of a $3,700 if you are in the highest tax bracket.

Qualified Charitable Distributions (QCDs)

Under the OBBBA, taxpayers aged 70½ and older can still take advantage of Qualified Charitable Distributions (QCDs). Up to $100,000 per year can be transferred tax-free directly from an IRA to a qualified charity.

For individuals aged 73 or older, QCDs can also count toward their Required Minimum Distributions (RMDs). This strategy allows donors to reduce their taxable income while supporting charitable causes.

In addition, taxpayers may still claim the universal charitable deduction for other donations made outside of QCDs.

Tax Planning Opportunities

Given the new charitable donation rules starting in 2026, taxpayers should consider accelerating donations into 2025.

• Bunching Donations: Combine multiple years of donations into one year to reduce the impact of the .5% AGI floor and reduced deduction tax benefit to high earning individuals.
• Using Donor-Advised Fund (DAF): Make a large donation to the fund and claim a deduction in 2025 and disburse donations out of the Fund over multiple years. If you made a stock donation to your DAF, deductions limitations still apply.

Key C-Corporation Charitable Deduction Changes Under OBBBA

New 1% Floor for Deductibility

C-corporations must now contribute at least 1% of their taxable income to qualify for any charitable deduction. Meaning no deduction is allowed unless the 1% threshold is met.

Existing 10% Deduction Ceiling Remains

The existing 10% of taxable income cap on C-corporations charitable deductions is unchanged. However, contributions above 10% can now be carried forward for up to five years, offering more flexibility in planning.

Questions?

For further guidance or personalized advice on this deduction, please contact your Polk and Associates advisor.

This article is for informational purposes only and should not be construed as tax advice.

Please consult your contact at Polk for tax advice specific to your tax situation.

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