Tax Alert: Upcoming Changes to Charitable Contributions and Itemized Deductions
New legislation introduced under this summer’s reconciliation bill, dubbed the “One Big Beautiful Bill Act” (OBBBA), imposes new limitations on itemized deductions. Changes affect allowable deductions for charitable contributions and overall itemized deductions. This will have an impact if you itemize your deductions, but the changes also include some good news if you opt for the standard deduction. We recommend careful consideration of your year-end and long-term giving strategies.
Individual Taxpayers: Impact on charitable contributions
The OBBBA introduces a limitation on the allowable itemized deduction for charitable contributions starting with the 2026 tax year. The itemized deduction for charitable donations is available only for contributions exceeding 0.5% of a taxpayer’s Adjusted Gross Income (AGI) for the tax year. Charitable donations below the 0.5% of AGI floor will no longer be allowable as an itemized deduction. On a positive note, the ceiling for an allowable charitable donation deduction has been permanently increased to 60% of a taxpayer’s AGI. Before the OBBBA, this deduction was scheduled to revert to 50% starting in 2026. However, the OBBBA permanently keeps the 60% level.
Additionally, individuals who do not itemize will now be able to claim an above-the-line deduction of up to $1,000 for single taxpayers and $2,000 for married taxpayers filing jointly. This deduction is in addition to the standard deduction. This change will provide individuals who claim the standard deduction with an additional benefit for their charitable giving.
The upcoming changes give taxpayers an opportunity to plan the timing of their charitable giving as we head toward the end of the year. Two tax planning tools to consider are Donor Advised Funds and charitable donation bunching. Donor Advised Funds are designated accounts allowing taxpayers flexibility to distribute funds to charitable organizations over time while claiming a full deduction in the year of contribution to the fund. Charitable bunching is the act of consolidating multiple years’ worth of donations into a single tax year. Both approaches could be effective tax planning tools to maximize the benefits of a taxpayer’s charitable giving plan.
Individual Taxpayers: Impact on itemized deductions
In addition to the limitation on charitable contributions deductions, the OBBBA reintroduces a limit on overall itemized deductions. Beginning with the 2026 tax year, individuals in the 37% tax bracket will face a reduction in their allowable itemized deductions. Specifically, the amount of itemized deductions will be reduced by the lesser of: (1) 2/37 of the total otherwise allowable itemized deductions, or (2) 2/37 of the amount by which taxable income (calculated before itemized deductions) exceeds the threshold for the 37% bracket. In effect, this rule reduces the tax benefit of itemized deductions for high-income taxpayers, so that those in the 37% bracket receive a benefit similar to taxpayers in the 35% bracket.
The overall itemized deduction limitation is applied after the limitation of individual itemized deductions such as state and local taxes (SALT) and charitable contributions.
Business Taxpayers: Impact on charitable contributions
For corporate taxpayers, the OBBBA has retained the cap on an allowable tax deduction for their charitable contributions, which remains at 10% of their taxable income. However, starting with the 2026 reporting year, a limitation 1% of taxable income will be introduced for the deductible portion of charitable contributions. Contributions exceeding the 10% ceiling and below the 1% limitation will not be deductible, but can be carried forward up to five years.
GRF Can Help
The OBBBA’s changes to charitable contribution and itemized deduction rules mark a pivotal shift in tax planning for both individuals and businesses. By introducing new floors and limitations, and expanding opportunities for non-itemizers, the legislation encourages more intentional giving and strategic timing of deductions. Prior to these provisions taking effect in 2026, taxpayers should proactively consult with their advisors to align their charitable and financial goals with the updated rules, ensuring they maximize available benefits and remain compliant with the evolving tax landscape. Please contact your tax professional or reach out to the GRF Tax Team if you have questions or would like our help analyzing how the newly enacted legislation impacts you or your business.
