The Implication of the New Tax Law on Charitable Donations: A Guide for the Fiscal Year 2025

The recently enacted One Big Beautiful Bill (OBBB) tax legislation has brought significant changes to the tax landscape, particularly regarding the deductibility of charitable contributions starting in 2026. This shift in tax law has significant implications for taxpayers who make charitable donations and those who plan to do so in the coming years.

Under the OBBB, a 0.5% floor on adjusted gross income (AGI) for charitable deductions will be imposed beginning in 2026. This new provision means that only the portion of charitable contributions that surpasses 0.5% of a donor's AGI will qualify for a deduction on their federal income tax return. It's important to note that the disallowed floor amount does not carry over to the following year.

Currently, taxpayers can deduct up to 60% of their AGI for qualified cash contributions, assuming other itemized deduction limitations do not apply. There is no floor, making every dollar of qualified giving deductible up to the limit. However, from 2026 onwards, the newly introduced 0.5% floor will serve as a threshold that must be surpassed for the donations to be deductible.

Moreover, the new tax legislation also affects individuals in the top 37% income tax bracket who itemize their deductions instead of taking the standard deduction. Starting in 2026, the tax benefit from all itemized deductions, including charitable donations, is capped at 35%.

A big planning opportunity that you may want to take advantage of - whether it's through a DAF (donor-advised fund), private foundation or public charity - is to make 2026 charitable contributions by December 31st, 2025. If you have any questions or wish to discuss the implications of the new tax law on your charitable donations, please do not hesitate to contact our office.