Charitable Contribution Limitations and Considerations Under the One Big Beautiful Bill Act

The One Big Beautiful Bill Act (OBBBA) contains several provisions that could impact charitable giving and planning, both for individuals and corporations. Given the new limitations created by the OBBBA, philanthropically inclined individuals and corporations need to know how best to optimize their charitable giving under OBBBA.  

Corporation 1% Floor 

The OBBBA creates a floor equal to 1% of taxable income for charitable deductions made by corporations. Corporation charitable deductions are already limited to 10% of taxable income, with any excess being allowed as a carry-forward in future years. The floor effectively limits a corporation’s charitable deductions to 9% of its taxable income.  

Under the OBBBA, if a corporation’s charitable deductions are less than 10% of its taxable income for that year, the first 1% subject to the floor cannot be carried forward – it is lost forever. However, if the deductions exceed 10% of the corporation’s taxable income, the excess, as well as the disallowed 1% can be carried forward. The 1% may be carried forward for up to five years. 

Example: 

X Corp has taxable income of $1,000,000 in 2026 and makes charitable donations of $90,000. Contributions equal to the first 1% of its taxable income are disallowed, meaning X Corp will only be allowed to deduct $80,000. If X Corp’s donations were $110,000, X Corp would be allowed a deduction of $90,000, with $20,000 being carried forward to 2027. However, that $20,000 will still be subject to the 1% floor in 2027.   

Charitable Deduction Laws Made Permanent for Individuals  

The OBBBA made the provision from the Tax Cuts and Jobs Act (TCJA) that allows individuals to deduct up to 60% of their AGI for contributions made in cash permanent. The OBBBA permanently reinstates above-the-line charitable deductions up to $2,000 for joint filers ($1,000 for other filers) after December 31, 2025, for individuals who claim the standard deduction. 

Individual 0.5% Floor 

The OBBBA also introduced a new .5% floor for individuals making charitable donations.  Beginning after December 31, 2025, individuals may only deduct donations that exceed .5% of their income in the year of donation. Disallowed donations due to the floor may be carried forward when an individual taxpayer makes donations above the overall percentage limitations, and the excess donations must be carried forward to the following year. Otherwise, donations equal to .5% of income are permanently disallowed.  

Example: 

Alice’s AGI in 2025 is $1,000,000. Alice donates $200,000 of cash, which is subject to a 60% AGI limitation. In 2025, Alice will be allowed to take a deduction of $200,000. 

Let’s assume Alice has the same AGI and makes the same donation in 2026. In 2026, $5,000 (.5% x $1,000,000 AGI) of the $200,000 is disallowed, resulting in a $195,000 charitable deduction. None of the $5,000 is carried forward to future years because Alice has not exceeded the 60% AGI limitation.  

If Alice’s donation is increased to $700,000, then she would be allowed to carry forward the disallowed $5,000, as well as the $100,000 disallowed by the 60% AGI restriction, for up to five years. 

What Happens with Mixed Asset Donations 

While cash is subject to a 60% limitation of AGI, other assets have lower limitations. For instance, the deduction allowed for donated stock is generally limited to 30% of AGI. So, what happens when you donate different assets? Under the bill, it seems that if a taxpayer exceeds the AGI limitation in any category, the disallowed .5% will still be allowed to be carried forward. That is, you do not have to exceed the AGI limit for each asset type if you donate both stock and cash, just one.  

Going back to our example, assume Alice donated $150,000 in stock and $300,000 in cash. Under the bill's ordering rules, she would be able to deduct $150,000 of the stock contribution and $295,000 of her cash. However, she would not be able to carry forward the disallowed $5,000 (.5% of AGI), since she did not exceed the AGI limitation of either cash or stock.  

If Alice instead donated $350,000 of stock and $100,000 in cash, she would be limited to a deduction of $300,000 for the stock and could take a full deduction of $95,000 for the cash donation. Since she exceeded 30% of her AGI for her stock contributions, she will be able to carry forward the disallowed $5,000 for five years.  

Itemized Deduction Limitation 

After applying the .5% floor limitation discussed above, donations are further limited by a new overall itemized deduction limitation.  The bill limits the value of itemized deductions for taxpayers who are subject to the 37% tax bracket. These taxpayers must reduce their itemized deductions by 2/37 of the lesser of: 

1. The total amount of itemized deductions, or 
2. The amount by which the taxpayer’s taxable income (increased by any itemized deductions) exceeds the starting income for the 37% bracket.  

Taxpayers who are subject to this limit are effectively disallowed up to a maximum of 5.4% of their donations beginning after December 31, 2025. Any amounts lost by the overall itemized deduction are permanent and may not be carried forward. The limitation is applied after other limitations on itemized deduction - that is, the .5% floor is applied first, and then charitable deductions are further restricted by IRC Sec. 68 if it applies. 

For 2026, the 37% bracket for a single taxpayer begins at $640,600. Returning to our example, after reducing her charitable contribution by the .5% floor, Alice would have her deductions further reduced as shown below. 

Note: This is calculated using the brackets and limits available at this time and does not reflect exact calculations. 

Planning Opportunities 

Taxpayers who wish to optimize their charitable contributions have several options.  

2025 Planning 

In 2025, taxpayers may wish to consider accelerating their charitable giving to maximize the impact before the above limitations take effect. Donor-Advised Funds (DAF) or Charitable Lead Trusts may be good options, but require careful planning and possibly burdensome administration. Corporations, in turn, may wish to maximize charitable contributions in excess of 10% to generate carry forwards. 

2026 Planning 

As a result of the TCJA, many taxpayers took to “charitable bunching.” This term refers to taxpayers donating the same amount they would typically donate over two years in one year to maximize their deductions. With the continued limitation on SALT deductions and the permanent increase to the standard deduction, bunching remains an option for taxpayers to maximize their charitable deductions. However, IRC Sec. 68 may reduce the benefit somewhat since it applies without regard to itemized deductions. Non-itemizers should consider making charitable deductions up to the above-the-line thresholds of $1,000 ($2,000 if married filing separately) in 2026. Corporations, meanwhile, may also wish to examine the use of “bunching” to maximize any charitable donations in years where their contributions would not exceed 10% of their taxable income.  

The changes made by the OBBBA to charitable deductions seem small, but require complicated calculations, ordering rules, and careful planning to maximize taxpayers’ charitable deductions and impacts. Philanthropically minded taxpayers should consult a trusted tax advisor on the best way to structure their giving in the a way that can be most impactful. Contact us below to see how we can assist.