Just in time for Giving Tuesday, there's some good news for charities. The tax deduction for charitable giving is undergoing some changes next year thanks to the One Big Beautiful Bill Act, with a new above-the-line deduction for cash donations that may encourage some donations, but also new caps and limits that may discourage others.
For tax years starting after Dec. 31, 2025, there's a $1,000 above-the-line deduction for single filers, or $2,000 for married couples filing jointly, who don't itemize. However, the provision isn't indexed for inflation and it's not available for donor-advised funds or private foundations, or for those who itemize.
For those who do itemize, there's a deduction floor allowing itemizers to only deduct 0.5% of their adjusted gross income. For taxpayers in the highest tax bracket of 37%, there's also a deduction cap, capping the value of all itemized deductions, including charitable contributions, at 35%. However, the OBBBA's "haircuts" on SALT and charitable deductions can result in both constraints and opportunities.
"With these new charitable deduction limitations, when you stack them on top of the new overall limitation on itemized deductions, it really makes sense for people to evaluate their charitable giving before the end of this year," said Damien Martin, a partner in EY's private tax and financial services organization. "All things being equal, you're maybe better off doing next year's giving this year from a tax deduction standpoint."
He noted that the limitation on the percentage of one's income that can qualify for a charitable deduction is changing. "There's a limitation that we've always had around percentage of your modified adjusted gross income that you can give away and be able to get a charitable deduction in any given year," said Martin. "That percentage for cash to 501(c)3 organizations is 60% of your income since the change in the tax law. It would have gone back down to 50%. All that means is you just carry forward the excess for a couple years, five to be specific, but you would eventually get it another year. That's beneficial. The other thing they did is they said, if you aren't itemizing your deductions, we'll allow you an above the line deduction for $1,000, or $2,000 married filing joint, as a charitable contribution deduction, even if you don't itemize, which is beneficial."
For those who do itemize deductions, there are also changes. "Effective next year, in 2026, there's a floor similar to what we have for medical, where you have a percentage of income that you have to exceed before you get the benefit of a deduction for that amount," said Martin. "It's 0.5% of AGI is the limit, or the floor. For example, if I have a million dollars of income, the first $5,000 that I get for the charitable contribution, if I'm itemizing my deductions, will now be nondeductible, so I lose that $5,000 deduction."
Another change involves a kind of "haircut." "The other thing that happens is, to the extent that you are in the top tax bracket, there's now going to be a new overall limitation on itemized deductions, which is similar to the Pease limitation that we previously had before the Tax Cuts and Jobs Act," said Martin. "There's a limitation that would kick in and limit the overall amount of all your itemized deductions. Well, that limitation's formally gone. Basically 5.14% is the haircut that you get."
Taxpayers may want to evaluate their long-term philanthropy planning and accelerate some of their charitable giving for 2025 if necessary. One strategy is to bunch deductions by itemizing several years' worth of charitable contributions into one year, and then taking the standard deduction in the other years.
"With the charitable giving changes that are going into effect next year, depending on the taxpayer situation, they're either going to be helpful and beneficial or they'll be harmful," said. Brian Schultz, leader of the Plante Moran Wealth Management tax practice. "Whether someone falls in camp A or camp B depends on their situation. They've now brought back this above the line deduction for charitable contributions, so even if someone does not itemize, they can still at least get a deduction for charitable contributions they're making. And the maximum limit of that is $1,000 per single filer, or $2,000 for married filing joint. That's going into effect next year."
He also pointed to new restrictions for those who do itemize, either on how much of your charitable contributions you can still deduct, or the maximum value that they can provide to you tax wise. "In 2026 they have instituted a brand new adjusted gross income floor, so the first one half of 1% of your income worth of charitable contributions, you'll no longer be able to benefit from starting in 2026," said Schultz. "So if I have a $500,000 adjusted gross income, then the first $2,500 of charity that I make donations, I will not get a tax benefit for. That's harmful if someone itemizes and they're given to charity. And then the other restriction for charitable is they implemented a restriction on the maximum tax savings you can get from your charity. So the top tax rate was extended. It's still 37% for federal taxes for ordinary income, but the One Big, Beautiful Bill Act basically capped the maximum tax savings you get for charitable contributions to 35%. So depending on someone's situation, they could get kind of double restricted. They could lose some of their charitable deductions next year because of the AGI floor, and then also the deductions to charity."
He noted that the maximum tax savings could be reduced as well. "If I don't expect to itemize my deductions in 2025 and 2026 and I'm making charitable contributions, it may be beneficial if I'm looking to make some donations before year end, that instead of making those at the end of December, I might wait till the very beginning of January, wait a couple weeks, push those donations into early 2026 so they help me qualify for the $1,000 or $2,000 deduction I can take, even if I don't itemize next year for charity," said Schultz. "For clients that could be harmed by the AGI limitation or that maximum 35% tax savings, they probably have a strong incentive to look to accelerate some charitable contributions and make them before the end of this year, because those two changes that would hurt the tax benefit for charitable don't kick in until 2026."
For clients who don't want to double the amount of their donations to charity, but still want to get the charitable deduction for 2025 and support those charities in 2026, they may want to contribute to a donor-advised fund.
"We're seeing our clients contemplating creating a donor-advised fund, or contributing additional assets to an existing donor-advised fund by year end," said Schultz. "That way they get the deduction when those donations go into the donor-advised fund. They might dole those proceeds out throughout the year in 2026 because that might be more consistent with their typical giving schedule to the charities that they care to support. So, depending on where they fall, they might want to really make a concerted effort to accelerate charity before year end, or maybe postpone. It just depends on which of those tax rules might be most relevant to them."
There are changes on the corporate philanthropy side as well as individuals. "The OBBBA has given and taken away at the same time in my opinion," said Joe Phoenix, co-founder and CEO of Givinga, a financial technology company. "The new law is affecting how corporations give money away. It's affecting how individuals give money away. The giving side of the OBBBA is against people who are not itemizing. For the first time ever, they now have the ability to take a universal deduction against contributions of either $1,000 or $2,000, depending on whether they're filing individually or jointly. That's a net positive for the charitable world. On the individual side, there's a new half percent floor that people are trying to figure out, and there's a new corporate floor of 1% that the markets are trying to figure out. Initially, when you look at something, that feels like a negative. I think that it's more of an annoyance than really a negative. It's a new law. People are going to have to calculate things. In the grand scheme of how companies and individuals give, it's almost a rounding error in their overall calculations, but it's something that they'll have to start thinking about."
He too sees advantages in donor-advised funds this year. "The donor-advised fund plays a very prominent role, specifically in 2025, because it allows people to take advantage of the existing tax laws and bunch a bunch of years forward and put it in a vehicle that allows them to carry that forward and use that throughout multiple years in the future," said Phoenix. "Donor-advised funds also give you the advantage of being able to take securities that are appreciated and donate those as well, so there's huge tax advantages for individuals to act now as they're assessing what's going to happen in 2026."
