Understanding Charitable Contribution Deductions Under the New Tax Law (OBBBA)

Published by 2 Cherry Tax – Wisdom in Wealth, Strategy in Growth

The One Big, Beautiful Bill Act (OBBBA) brings some important updates to the charitable contribution deduction, starting in 2026. These changes will impact both non-itemizers and itemizers, so let’s break down what this means for you.

What’s New for Individuals?

• Non-Itemizers Benefit: Beginning in 2026, even if you take the standard deduction, you may still claim a charitable deduction for cash contributions: Even if you don’t itemize deductions, you can claim an above-the-line deduction for charitable contributions:

  1. Up to $1,000 if filing single

  2. Up to $2,000 if married filing jointly

     
     

• 0.5% Floor for Itemizers: If you itemize, only donations exceeding 0.5% of your adjusted gross income (AGI) are deductible.

  Starting in 2026, itemizers must clear a new hurdle:

  • You can only deduct charitable contributions if your total annual giving exceeds 0.5% of your Adjusted Gross Income (AGI).

  Example:

  • AGI: $100,000

  • Donations: $4,000

  • Floor: $100,000 × 0.5% = $500

  • Deduction allowed: $3,500 ($4,000 – $500)

  Important Note: Donations carried over from before 2026 are not subject to the 0.5% floor, but carryovers from 2026 and beyond will be.

  
  

• Permanent 60% AGI Limit for Cash Gifts: The previous 60% AGI limit on cash contributions to qualified charities is now permanent.

• Carryover of Excess Contributions: If your donations exceed limits, the excess can be carried forward for up to 5 years.

  
  

What’s New for Corporations?

• Starting in tax years after December 31, 2025, corporations can deduct only charitable contributions above 1% of taxable income, up to the existing 10% limit.

• Special exceptions apply for certain farmers, ranchers, and native corporations.

• Excess contributions beyond the 10% limit can be carried forward for 5 years, applied on a first-in, first-out basis.

  
  

Why These Changes Matter

• They encourage charitable giving by expanding deductions to non-itemizers.

• They set clear floors (0.5% for individuals, 1% for corporations) so only meaningful donations are deductible.

• They simplify and clarify the limits and carryover rules.

Individual Taxpayers

Detail	Taxpayer A (AGI $500,000)	Taxpayer B (AGI $1,000,000)
Total Cash Donations	$50,000	$120,000
Non-Itemizer Deduction (Above-the-Line)	$1,000	$1,000
0.5% Floor on AGI	$2,500	$5,000
60% AGI Limit on Cash Donations	$300,000	$600,000
Deductible Amount (if Itemizing)	$47,500 (donations minus floor)	$115,000 (donations minus floor)

Corporate Taxpayer

Detail	Corporation Example
Taxable Income	$1,000,000
Total Charitable Contributions	$60,000
1% Floor Amount	$10,000
10% Limit Amount	$100,000
Deductible Amount (above floor)	$50,000