Understanding the Changes in Charitable Deductions Under the One Big Beautiful Bill Act (OBBBA)

The recently signed One Big Beautiful Bill Act (OBBBA) introduces several key changes to the Internal Revenue Code, one of which directly affects the deductibility of charitable donations. These changes, set to take effect in 2026, will affect both individual taxpayers and corporations. Here’s a closer look at how these new provisions will work and what they mean for you.

Charitable Donations for Standard Deduction Filers

Under the current tax law, taxpayers who opt for the standard deduction receive no benefit from their charitable donations. However, starting January 1st 2026, the OBBBA will allow individuals who take the standard deduction to claim a charitable donation deduction as well. This deduction will be up to $1,000 for single filers, or $2,000 for those who file jointly (Married Filing Jointly). Importantly, this charitable deduction will be in addition to the standard deduction, meaning taxpayers can benefit from both. This provision to the law does make some types of donations ineligible, including donor-advised funds or private non-operating foundations.

Deductions for Itemizers: New Limits and Extended Caps

For those who itemize their deductions, the OBBBA introduces some significant changes. One major adjustment is the introduction of a threshold for deductible donations. Starting in 2026, only donations that exceed 0.5% of a taxpayer’s Adjusted Gross Income (AGI) will be deductible.

For example, let’s say Sally has an AGI of $100,000. Under the new rules, she can only deduct charitable donations that exceed $500 (0.5% of $100,000). However, this provision also permanently extends the current rule that allows higher-income taxpayers to deduct cash donations up to 60% of their AGI.

Take another example: Sally’s AGI is $500,000, and she donates $320,000 to her local church. Only donations above the 0.5% threshold—$2,500—are deductible in the current year. That means $317,500 of Sally’s donation will qualify for a deduction. Of that $317,500, only $300,000 ($500,000 AGI x 60%) can be deducted in the current year. The excess would be carried forward to use in future years.

Corporate Donations: New Deduction Thresholds

The new tax law also impacts corporate donations. This provision establishes a floor equal to 1% of taxable income for the deductibility of corporate charitable contributions. Excess of 1% is deductible up to the current limit of 10%. If a corporation’s contributions exceed the 10% limit, the provision allows taxpayers to add the amount disallowed under the 1% floor to amount carried over to the following year. Any disallowed amounts can be carried forward up to five years.

For instance, if Sally Ann’s Cookies has an adjusted taxable income of $875,000, only donations above $8,750 (1% of $875,000) will be deductible. If the corporation donates more than $96,250 (which includes the 10% limit on donations, plus the disallowed 1% donations), the excess $8,750 would be carried forward to the following tax year.

The Importance of Proper Documentation

No matter how large or small, all charitable donations claimed on a tax return must be supported by adequate documentation. This can include receipts from the charitable organization or bank records showing the transaction. For contributions $250 or more, a written acknowledgement from the charity is necessary. Be sure to keep detailed records of your donations to ensure they can be substantiated in the event of an audit.

How Can We Help?

The One Big Beautiful Bill Act (OBBBA) introduces new opportunities and limitations that affect charitable deductions. Taxpayers who make charitable contributions should understand these changes and plan accordingly.

Effective charitable giving now requires strategic planning. We can help you:

• Analyze how the new provisions impact your situation
• Develop strategies to maximize deductions
• Align tax benefits with your philanthropic goals

Partner with your Puryear & Noonan adviser to help you make the most of your charitable giving by maximizing tax benefits and opportunities!