The One Big Beautiful Bill (OBBB) will usher in many changes. The most significant involve updates to the U.S. tax code in regard to charitable deductions for philanthropically minded Americans.
High-net-worth donors must contend with stipulations coming into effect on January 1, 2026:
New floor on deductions for itemizers. Philanthropic donations at or below 0.5% of a filer’s adjusted gross income will not provide any deductions.
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Cap on deductions for top tax bracket. The deduction value of itemized charitable donations will be capped at 35% for filers in the 37% tax bracket (the highest).
New universal charitable deduction for nonitemizers. Tax filers who don’t itemize their charitable deductions will be subject to a universal deduction amount — up to $1,000 for single individuals and up to $2,000 for married couples.
This universal deduction does not apply to contributions made to donor-advised funds (DAFs) or private foundations. To receive this new deduction, the gift must be made with cash; donations of appreciated securities will not trigger this new deduction.
Unused deductions are subject to new floors and caps. Charitable deductions that weren’t applied to tax returns might still be carried forward to the next year’s filing, but any donations carried over into 2026 or later are also subject to the above new floor and caps.
What do these new rules ultimately mean? After the New Year, smaller or routine philanthropic donations might not be able to contribute nearly as much in tax deductions — or will contribute nothing in deductions.
Further, affluent donors who make sizable donations will reap considerably less in tax advantages.
That makes year-end charitable giving and tax planning before 2025 runs out more urgent than ever. For the remainder of the year, taxpayers can consider certain strategic moves that can potentially maximize the tax deductions on charitable gifts made in 2025:
Consolidate multiyear gifts into 2025 filings. Instead of spreading multiyear philanthropic gifts over time, their full amounts should be filed for the 2025 tax year.
That way, the deductions on multiyear gifts won’t be affected by the new rules going into effect on January 1.
Prefund multiyear gifts into a donor-advised fund now. Setting up a DAF before 2025 runs out to prefund charitable gifts can also ensure any potential deductions can fall under the 2025 deduction rules.
Keep an eye on adjusted gross income. Since the 0.5% deduction floor is tied to a filer’s adjusted gross income, taxpayers need to keep that in mind as they plan charitable gifts going forward.
Business sales and other events which can decrease or increase adjusted gross income will also affect the deduction potential of charitable donations made in years in which that income is either lower or higher.
The window from now through December 31, 2025, grants taxpayers a crucial period for reviewing year-end charitable giving planning ahead of the OBBB’s charitable deduction stipulations.
The new rules with regard to deductions will change the potential tax benefit derived from large, ongoing donations to philanthropic causes.
Planning now can help lock in deductions on multiyear gifts under the current calculations, and also potentially optimize deductions on donations made in future tax years.
