Charitable Donations: OBBBA 2026 Changes to Deduction Rules

New rules under the One Big Beautiful Bill Act (OBBBA) change how charitable contributions can be deducted, introducing both incentives and new limitations that may affect when and how much taxpayers choose to donate. Most of the updates reduce the tax benefits for individual donors—particularly higher-income taxpayers who itemize deductions. The key planning opportunity lies in deciding whether to make contributions in 2025 or postpone them to future years, depending on one’s financial situation and goals.

Charitable deduction for nonitemizers

Before addressing the new limitations for itemizers, it’s important to highlight a major new benefit for nonitemizers. Beginning January 1, 2026, individuals who do not itemize deductions will be able to deduct up to $1,000 (or $2,000 for married couples filing jointly) in annual cash contributions to qualified charities. This change is expected to benefit lower- and middle-income taxpayers the most. We are advising our clients to keep records of their smaller charitable donations throughout the year so they can take full advantage of this new deduction when it becomes available.

Floor for charitable deductions by itemizers

Turning to the new limitations on charitable deductions under the OBBBA, starting January 1, 2026, taxpayers who itemize will face an annual 0.5% floor based on their contribution base, generally their adjusted gross income (AGI). This new threshold reduces the value of itemized charitable deductions and, for those with smaller contributions near the floor, could eliminate the ability to deduct them entirely.

Additionally, the 60%-of-AGI cap on cash contributions to public charities and certain private foundations—originally set by the Tax Cuts and Jobs Act (TCJA)—has been made permanent. It was previously scheduled to expire at the end of 2025 and revert to 50%.

Although the 0.5% floor applies to all itemizing taxpayers, it will have the greatest effect on higher-income earners. For planning purposes, individuals may benefit from making larger charitable contributions in 2025, before the new floor takes effect, or timing donations for a year when their AGI is lower, thereby minimizing the impact of the limitation.

Ceiling on itemized deductions for high-income taxpayers

Beginning January 1, 2026, the One Big Beautiful Bill Act (OBBBA) introduces a new limitation for taxpayers in the highest federal tax bracket (37%). Under this rule, the benefit of itemized deductions will be capped at 35%, and this ceiling applies to all itemized deductions, not just charitable contributions. For reference, in 2025, the 37% tax bracket begins at $626,351 for single filers and $751,601 for married couples filing jointly.

The disallowed portion of the deduction will be calculated as 2/37 of the lesser of total itemized deductions, or the amount of income taxed at the highest marginal rate.

Example: In 2025, a taxpayer with AGI of $1 million and $100,000 of charitable contributions in the 37% marginal tax bracket would have a $37,000 federal tax benefit. In 2026, the taxpayer will get a benefit of $33,250 ($1 million of AGI is subject to a 0.5% nondeductible floor, so the maximum charitable deduction is $95,000, and the deduction is calculated at the 35% tax rate). In this example, OBBBA changes result in an approximately 10% reduction in tax benefit for the same level of contributions.

As this example shows, high-income taxpayers will likely see reduced deductions for charitable contributions starting in 2026. Many may choose to accelerate donations into 2025 to secure greater tax advantages. It’s also wise for taxpayers in the highest bracket with substantial itemized deductions to plan now—by considering strategies to lower taxable income below the 37% threshold before the new limits take effect.

Planning strategies

Donor-Advised Funds (DAFs):DAFs offer a flexible way to contribute cash, stock, or other assets while receiving an immediate tax deduction in the year the fund is established. The contributed assets can be invested and grow tax-free, and donors retain control over when and how funds are distributed to charities—either right away or over time.

DAFs are increasingly accessible, often with low minimum contribution requirements, and provide a convenient way to separate the timing of the tax deduction from the actual charitable donations. Funding a DAF in 2025 may be a smart strategy to secure a deduction before the new 0.5% floor takes effect in 2026, even if the charitable grants themselves are made in later years.

Charitable Bunching: Charitable bunching involves combining several years’ worth of donations into a single tax year to maximize the tax benefit. This strategy gained popularity after the Tax Cuts and Jobs Act (TCJA) doubled the standard deduction, reducing the number of taxpayers who itemize.

By front-loading contributions into 2025, donors can take advantage of the higher deduction before the new floor and ceiling rules take effect in 2026. Conversely, taxpayers with moderate incomes who are not in the top tax bracket might consider bunching in 2026, choosing to delay their charitable giving and contribute two years’ worth of donations at once to achieve a greater tax benefit.

Qualified Charitable Distributions (QCDs):For taxpayers age 70½ and older, qualified charitable distributions (QCDs) offer a valuable way to give to charity while avoiding the new deductibility floor and ceiling. A QCD involves making a direct donation from an individual retirement account (IRA) to a qualified charity. This approach is especially beneficial for individuals subject to required minimum distributions (RMDs).

In 2025, the annual QCD limit is $108,000 per individual (or $108,000 per spouse for joint filers). By donating all or part of an RMD directly to a public charity, the amount is excluded from taxable income, whereas RMDs taken personally would otherwise be taxed as ordinary income. This strategy can effectively reduce both taxable income and future RMDs while supporting charitable goals.

It’s important to plan the timing carefully — QCDs must be made before RMDs are taken in order to reduce the taxable portion of the RMD. Overall, QCDs remain a powerful planning tool for those approaching or over age 70½ who wish to make charitable gifts more tax-efficiently than simply writing a check.

There are significant changes to charitable contribution deductions starting in 2026, which will reduce benefits for many itemizing taxpayers while introducing a new, limited deduction for nonitemizers. With new floors, caps, and ceilings on deductions, 2025 presents a key opportunity to plan charitable giving strategically. Thoughtful planning can help maximize tax advantages before the new rules take effect. If you’d like personalized guidance on how these changes may impact your giving strategy, feel free to reach out for tailored advice.