The One Big Beautiful Bill Act (OBBB) triggered numerous legislative changes to the Internal Revenue Code and corresponding regulations. One notable modification is to the treatment of charitable deductions, which is impacting taxpayers’ strategies and is expected to result in reduced donor contributions for the 2026 tax year and beyond.
New Limitations and Rules
The OBBB changed the rules for charitable deductions for both itemizing and non-itemizing taxpayers. Beginning January 1, 2026, itemizing taxpayers are now subject to a charitable deduction floor of 0.5% of their adjusted gross income and will continue to be subject to a 60% cap on cash contributions made to public charities. Additionally, the new rules cap the tax benefit of itemized charitable deductions at 35% for those in the 37% marginal tax bracket. These rules will also impact charitable deduction carryovers for such taxpayers. For taxpayers that do not elect to itemize, taxpayers filing individually are now eligible to deduct charitable contributions up to $1,000 and taxpayers filing jointly are now eligible for a maximum $2,000 charitable deduction. Previously, charitable deductions were only available to itemizing taxpayers.
Similar to itemizers, a new floor applies to C-Corporations, which means donations are only deductible in excess of 1% of the company’s taxable income. The existing 10% taxable income ceiling for C-Corporations is unchanged.
Impact on Charitable Foundations
While these legislative changes are driven by a number of factors, the real-world impact on those affected is often overlooked. According to a new research report by Indiana University Lilly Family School of Philanthropy, the OBBB is projected to reduce charitable giving by roughly $5.69 billion annually (roughly 1%). That total is estimated based on the following:
- An increase of $4.39B of gifting by those non-itemizing taxpayers now motivated to give because of the new above-the-line deduction available to them.
- A decrease of $2.43B of gifting due to the 0.5% floor for itemizing taxpayers.
- A decrease of $6.1B of gifting due to the 35% cap on value of the deductions for those in the highest tax bracket.
- A decrease of $1.55B by C-Corporation gifting due to the 1% floor on corporate charitable gifting.
These effects may not be fully seen until one full year after the law is in effect.
Increase in Donor-Advised Funds
Based off the projected impacts of the OBBB, there has been a rise in the use of a Donor Advised Fund (DAF). DAFs are charitable giving accounts that allow donors to make a large deductible contribution in one year and then give to their chosen charities over a span of time as they choose.
Ultimately, the OBBB signals a notable shift in how taxpayers approach charitable giving. As these changes take effect, taxpayers and charitable organizations should reevaluate their strategies. While new thresholds and reduced incentives may limit immediate tax advantages, there are tools that exist that can play an important role in maximizing tax efficiency and charitable giving impact.
For more information, or to seek counsel from our Taxation group, please reach out to request a consultation or call us at 216-696-1422.
