by Brett Norris, CFP®
Vice President
Portfolio and Wealth Management
The passage of the One Big Beautiful Bill Act (OBBBA) earlier this year marked a shift in how philanthropy is treated in the United States from a tax perspective. The OBBBA introduced a variety of new provisions and planning opportunities for taxpayers to be aware of, some of which may advantage some taxpayers and disadvantage others.
Prior to OBBBA, the tax landscape for charitable contributions was most recently shaped by the Tax Cuts and Jobs Act (TCJA) and the CARES Act. Under the CARES Act, for example, non-itemizers were able to deduct up to $300 ($600 for joint returns) in charitable cash contributions during 2020 and 2021. And prior to that, in 2017, TCJA increased the standard deduction, resulting in only about 10% of households itemizing deductions, thereby limiting the pool of taxpayers eligible for tax advantages from having made charitable gifts.
OBBBA builds on these precedents, reviving and expanding certain deductions while introducing new floors and ceilings that recalibrate incentives for donors at all levels, some of which are detailed below:
Increased Tax Deduction for Non-Itemizers
OBBBA reinstates above-the-line deductions for non-itemizers, allowing individuals who do not itemize their tax returns to deduct up to $1,000 in cash contributions to qualifying charities (excluding donor-advised funds and private non-operating foundations). Married couples filing jointly may deduct up to $2,000 annually. This provision is effective starting January 1, 2026, and is not indexed for future inflation.
Implications:
Expands the base of donors eligible for tax incentives, potentially increasing giving among households that traditionally do not itemize deductions.
Creates new opportunities for community organizations, churches and employers to encourage consistent giving.
May pair well with workplace giving campaigns and employer matching programs, especially for younger or lower-income donors.
Creation of a Floor for Deductions for Itemizers
The OBBBA introduces a “floor” for charitable contribution deductions, where itemizers may deduct contributions only to the extent that their giving exceeds 0.5% of their adjusted gross income (AGI). For example, an itemizing taxpayer with $300,000 AGI must contribute more than $1,500 before deductions begin to count. This limitation is effective beginning January 1, 2026.
Implications:
Moderate annual donors whose contributions fall below the 0.5% AGI threshold may lose the tax benefit for their giving.
Families that typically “spread” gifts over several years may benefit from “bunching” their donations into a single year.
Cap on Deduction Benefit for High-Income Taxpayers
OBBBA limits the tax benefit from deductions to a maximum of 35% marginal tax rate—even for taxpayers in the 37% bracket. For example, a high-income itemizing filer donating $10,000 may receive $3,500 in savings rather than $3,700, starting in 2026.
Implications:
High-income donors considering significant gifts may want to accelerate giving before the end of 2025 to maximize the deduction under the current rates.
This cap may reduce the incentive for large-scale giving among those in the highest bracket.
Permanency of 60% of AGI Limit for Cash Donations
Under previous law, cash donation deductions were capped at 60% of the taxpayer’s AGI but were set to revert to 50% after December 31, 2025. Now, OBBBA makes the 60% AGI limit permanent, maintaining expanded opportunities for donors to make larger cash gifts.
Implications:
Donors who regularly approach or exceed the annual AGI limit may continue to benefit from increased deductibility.
Bunching strategies and timing of contributions remain essential, especially for major gifts.
Strategic Planning Opportunities and Recommendations
Accelerate giving before 2026: Donors anticipating making significant gifts may benefit from accelerating contributions before the new floors and caps take effect in 2026.
Gift bunching: Consolidating multiple years' worth of giving into a single tax year can help surpass the 0.5% AGI floor and maximize deductions.
Donor-advised funds (DAFs): DAFs remain useful for front-loading gifts in high-income years, while distributing funds over time.
Qualified charitable distributions (QCDs): QCDs from IRAs remain valuable for donors over 70½, reducing AGI and bypassing the new floor altogether.
Non-cash donations: Gifts of appreciated stock or real estate can unlock significant tax benefits, particularly when offsetting capital gains or unusually high income.
OBBBA creates both expanded opportunities and new limitations for giving. Ultimately, the value of philanthropic intent remains, but the path to optimal tax treatment requires careful navigation. Charitably inclined clients of Ferguson Wellman and West Bearing should be sure to collaborate with their portfolio manager and tax advisor to ensure they are properly strategizing, considering the new rules introduced by OBBBA.
Ferguson Wellman, Octavia Group and West Bearing do not provide tax, legal, insurance or medical advice. This material has been prepared for general educational and informational purposes only and not as a substitute for qualified counsel. You should consult qualified professionals to understand how this information may, or may not, apply specifically to you.