Key Highlights

• For itemizers, the One Big Beautiful Bill Act (OBBBA) adds a floor to the charitable deduction.
• For non-itemizers, the OBBBA adds an above-the-line deduction for charitable donations.
• These changes to charitable giving do not apply until 2026 so taxpayers may bunch charitable giving this year to take advantage.

Changes to the Charitable Deduction for Itemizers

Starting in 2026, taxpayers who itemize deductions on their tax return can only deduct charitable donations that exceed 0.5% of their Adjusted Gross Income (AGI) for the year.

Example:

• AGI is $200,000
• Total 2026 charitable giving is $5,000
• 0.5% of AGI is $1,000 ($200,000 x 0.5%)
• The deductible portion of charitable donations is $4,000
• The non-deductible portion of charitable donations is $1,000

With this change, routine or smaller gifts may no longer provide a tax benefit for taxpayers who itemize. If the total 2026 charitable giving in this scenario is $1,000 or less, no deduction is allowed for taxes.

Changes to the Standard Deduction for Non-Itemizers

In 2020 and 2021, the CARES Act introduced a $300 above-the-line charitable gift deduction. Starting in 2026, the above-the-line charitable gift deduction returns permanently with a significant boost. Taxpayers who do not itemize can deduct up to $1,000 ($2,000 for married filing jointly) in charitable cash donations. This deduction is not adjusted for inflation and excludes gifts to donor-advised funds and private non-operating foundations.

Planning Strategies for Itemizers

• Bunching Gifts: This is a plan to front-load several years of charitable donations into a single year. Doing this in 2025 maximizes the tax benefit and avoids the floor in 2026.
• Donor-Advised Fund (DAF): DAFs allow you to bunch charitable donations for tax purposes while at the same time allowing you to direct individual giving to charities over time.
• Asset-Based Giving: Donating appreciated stock or other non-cash assets can reduce your taxable income in addition to increasing your charitable gift.
• Qualified Charitable Distributions (QCD): For taxpayers older than 70.5, distributions can be made directly to charities which reduces taxable income and avoids the floor. QCDs fulfil annual required minimum distributions (RMD).

Additional Changes for High-Income Taxpayers

• Cap for High-Income Filers: Starting in 2026, the value of itemized deductions is capped at 35% for those in the top tax bracket, reducing the maximum tax benefit per dollar donated.