New Charitable Giving Rules Take Effect in 2026
As we approach the busy season, taxpayers making year-end charitable donations face significant changes under the One Big Beautiful Bill Act (OBBBA). This legislation introduces substantial modifications to how both itemizers and non-itemizers can benefit from their charitable contributions.
Expanded Standard Deduction and New Above-the-Line Charitable Deduction
The OBBBA permanently increases the standard deduction, effective in tax year 2025. Single filers will see a standard deduction of $15,750, while joint filers can claim $31,500. These amounts will adjust for inflation in subsequent years.
Taxpayers who claim the standard deduction can also deduct charitable contributions. Starting in tax year 2026, the OBBBA creates a permanent above-the-line deduction of $1,000 per filer for charitable donations.
Significant Changes for Itemizers
Taxpayers who itemize their deductions will encounter several new limitations starting in 2026.
New Charitable Deduction Floor
The OBBBA introduces a floor on charitable contribution deductions equal to 0.5 percent of adjusted gross income (AGI). Only donations exceeding this threshold will be deductible.
Increased Cash Contribution Limits
The legislation makes permanent the previous increase, allowing cash charitable contributions to be deducted up to 60 percent of AGI, while maintaining the 50 percent limit for non-cash contributions. Under ordering rules, cash gifts are deducted before non-cash gifts.
Top Bracket Itemized Deduction Limitation
At the beginning of this year, taxpayers in the highest tax bracket (37 percent) face an additional limitation on itemized deductions. The value of their itemized deductions will be limited to 35 cents per dollar rather than 37 cents.
To calculate this limitation, taxpayers add their itemized deductions to their AGI to determine adjusted income. They then reduce their itemized deductions by taking 2/37 of the lesser amount of either their itemized deductions or their income exceeding the 37 percent bracket threshold.
SALT Deduction Changes
The new law temporarily raises the state and local tax (SALT) deduction limit to $40,000. However, this higher limit phases down to $10,000 for taxpayers with income between $500,000 and $600,000. The limit and phaseout threshold will increase by 1 percent annually through 2029, after which the limit returns to $10,000.
Additional Changes to Know
The OBBBA introduces a new non-refundable tax credit of up to $1,700 for contributions to scholarship-granting organizations that provide elementary and secondary education scholarships. This credit applies to contributions received beginning in 2027 and can reduce tax liability, but not below zero.
For corporations, the legislation implements a 1 percent floor on the charitable contribution deduction.
Take Action Before Year-End
With significant changes on the horizon, taxpayers should review their charitable giving strategies now. Consulting with your tax professional could result in substantial tax savings.
Understanding how these new rules affect your specific situation will help you make informed decisions about charitable giving while maximizing available tax benefits. Need help with your taxes? Get in touch with CPA Nerds to gain expert advice on your next steps.