Act Now to Prepare for Big Changes to Individual Charitable Contribution Deductions
The One Big Beautiful Bill Act (the “Act”), Pub. L. 119–21, introduces significant changes to the federal income tax rules for charitable contribution deductions for individuals, effective starting in the 2026 tax year. [1] These changes include:
New 0.5% Floor for Itemized Filers
The Act introduces a floor equal to 0.5% of an individual taxpayer’s contribution base, below which charitable contributions are not deductible. In practice, this means only the portion of total annual charitable giving that exceeds a threshold (expressed as a percentage of adjusted gross income (“AGI”) or a fixed dollar amount, as specified in the Act) will be deductible. The floor applies in addition to the standard itemization requirements.
There is an ordering rule for applying the floor, which applies first to capital gain property contributions to private foundations, then capital gain property contributions to public charities, then other contributions to private foundations, then contributions of qualified conservation easements, then other contributions to public charities, and, finally, cash contributions to public charities.
Amounts disallowed by this deduction limitation can be carried forward for five years, though would remain subject to the 0.5% floor and AGI caps.
As an illustration, if, for the 2026 tax year, Jessica has $1 million AGI and donates $50,000 to public charities, her 0.5% floor is $5,000. So, Jessica could only deduct $45,000 of her charitable contributions and would carry the $5,000 excluded deduction forward for up to 5 years.
Permanent $1,000 Deduction for Non-Itemized Filers
The CARES Act, Pub. L. No. 116-136, had provided a below-the-line deduction to non-itemizers of $300 ($600 for joint return filers) for charitable cash contributions in tax year 2021. The Act reinstates and increases this additional contribution deduction for non-itemizers to $1,000 ($2,000 for joint return filers).
Contributions to supporting organizations and donor-advised funds are explicitly excluded from this deduction.
Reduced Value of Itemized Deductions
The Act imposes a new limitation on itemized deductions. For tax years beginning after 2025, itemized deductions are reduced by 2/37 of the lesser of (1) the amount of such itemized deductions or (2) the amount of taxable income exceeding the taxpayer’s dollar amount threshold for the 37% tax bracket. Charitable contribution deductions are an itemized deduction, which is subject to this limitation, meaning that the benefit of this deduction is capped at 35%.
So, assume Jessica, from above, had the $50,000 charitable contribution as her only itemized deduction. In 2025, she could potentially fully deduct that amount (subject to other existing limitations). In 2026, her deduction would be limited to $47,297,[2] in addition to the 0.5% floor (discussed above), leaving her a net deduction of $42,297 on $50,000 of charitable donations.
Potential strategies to consider
Maximize charitable giving in 2025. Some taxpayers may be able to accelerate potential future donations for the 2025 calendar year. For example, if Jessica expects to make $50,000 charitable contributions in each of the next 3 years, she could make a single $150,000 donation in 2025 and unlock an additional $15,406 in deductions.
“Bunch” charitable giving in future years. Because of the 0.5% floor, it may be advantageous to some taxpayers to “bunch” their charitable giving, particularly in years when their AGI is lower than is typical. Say Jessica’s AGI in 2026 is $800,000 rather than her typical $1 million, the 0.5% floor drops from $5,000 to $4,000, providing an additional $1,000 in current charitable contribution deductions, meaning that 2026 could be a better year to make multi-year donations. Even without a “down” year, bunching donations would minimize repeated applications of the 0.5% floor (though should be considered in conjunction with the itemized deduction cap).
Next Steps
Donors, particularly those who itemize, should review existing philanthropic plans and multi-year pledges in light of these changes. They could, perhaps, work with their financial advisors to create projections taking into account expected AGI, other anticipated deductions, carryforwards, and any state conformity to determine whether to accelerate gifts into 2025, plan to bunch future charitable contributions, reassess the mix of donating cash and appreciated assets, or restructure DAF usage.
We are available to discuss these changes with you and the rest of your financial planning team.
[1] Changes related to other taxpayers (corporations, etc.) are beyond the scope of this Client Alert.
[2] $50,000 minus the lesser of (1) 2/37 x $50,000 = $2,702.70 or (2) 2/7 x $500,000[2] = $27,027.03
Please reach out to Jordan Halle or Justin DeVault at Shulman Rogers if you have any questions.
The contents of this Alert are for informational purposes only and do not constitute legal advice. If you have any questions about this Alert, please contact the Shulman Rogers attorney with whom you regularly work.
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