Laura L. Brownfield
General Counsel

The One Big Beautiful Bill Act, H.R. 1, (“OBBBA”) the 2025 budget reconciliation bill, signed into law on July 4, 2025, implements major changes to the federal charitable contribution tax regime.  The new law bolsters existing incentives and creates new avenues for tax-favored giving. The Act indefinitely (“permanently” – until Congress/new administration changes the law) extends the 2017 Tax Cuts and Jobs Act (“TCJA”) and adds various tax cuts that are priorities of the Trump administration. The Act imposes new floors, caps, and exclusions which demand a nuanced understanding of the statutory framework to fully realize its benefits and minimize its limitations. The following summarizes the relevant charitable giving provisions. 

Permanent 60% Limitation for Cash Gifts 

OBBBA locks in the 60% Adjusted Gross Income (“AGI”) limitation on cash contributions to public charities, which had previously been scheduled to expire on January 1, 2026, at which time it would have reverted to the historical 50% AGI cap. This is a “permanent” extension of the 60% AGI limitation that was temporary under TCJA.  

This change ensures that taxpayers can continue to deduct cash contributions to public charities described under IRC § 170(b)(1)(A) up to 60% of their AGI (i.e. all income an individual taxpayer receives less specific deductions allowed by the IRS that reduce gross income, including contributions to IRAs, self-employment taxes, etc.). 

OBBBA modifies Section 170(b)(1)(G) and Section 170(b)(1)(B), which define limits for appreciated property charitable deductions. While it is not certain, until guidance is received from the IRS or Joint Committee on Taxation (“JCT”), subparagraphs (B)(ii)(I) and (II) appear to permit 30% cash and 30% appreciated gifts to be deducted in one year. The IRS or JCT guidance will hopefully include examples that clarify the math for layered or combined gift deductions.  

Increased Standard Deduction and Above-the-Line Deduction for Non-Itemizers for Cash Contributions  

The 2025 standard deduction under I.R.C. § 63(c) was slated to be $15,000 for individuals and $30,000 for married couples filing jointly in 2025 but to revert to half of those amounts (indexed for inflation) in 2026. The Act makes the increased standard deduction permanent, while also providing an increase in the deduction to $15,750 for singles, $23,625 for heads of household, and $31,500 for married couples filing jointly, beginning in 2025. 

Beginning in 2026, non-itemizers can once again benefit from an above-the-line deduction permitting up to $1,000 for single filers and $2,000 for joint filers in cash contributions. These gifts must be made directly to public charities described in IRC § 170(b)(1)(A), excluding donor-advised funds, private nonoperating foundations, and supporting organizations.  

New 0.5% AGI Floor on Individual Charitable Deductions 

Beginning in 2026, there is a new floor in determining total charitable deductions. Contributions will be deductible by those who itemize only to the extent their aggregate charitable contributions exceed 0.5% of AGI. This rule applies across all otherwise deductible contributions, regardless of the type of donee organization or the form of property contributed.  The 0.5% floor operates independently of AGI percentage limitations under IRC § 170(b)(1). 

•  Statutory Ordering Rule

  • Congress also codified a required order in which contributions are applied against the 0.5% floor. The order is below. This ordering generally allows the highest-limitation gifts to apply last, maximizing overall deductibility. 
    • Capital gain property to private nonoperating foundations (20% AGI limitation).
    • Capital gain property to 50% charities (30% AGI limitation).
    • Cash to 30% limit organizations (30% AGI limitation). 
    • Qualified conservation easements (50% AGI limitation, or 100% in the case of a qualified farmer or rancher). 
    • Noncash gifts to public charities (50% AGI limitation). Cash gifts to public charities (60% AGI limitation). 

• Carryforward of Disallowed Contributions 

Taxpayers may carry forward charitable contributions disallowed solely because they fall under the new 0.5% AGI floor. These contributions may be carried forward to each of the five succeeding taxable years. In a carryforward year, previously disallowed contributions under the 0.5% AGI floor are added to the taxpayer’s pool of available deductions, subject to both the 0.5% AGI floor in the carryforward year and to the AGI percentage limitation that applied to the contribution in the year it was originally made.  In accordance with existing law, current-year contributions are considered first, and carryforwards may be deducted only if there is remaining room under the applicable AGI percentage limitations.  

New 1% Floor for Corporate Contributions 

For corporate charitable deductions, the Act creates a new 1% floor under IRC § 170(b)(2)(A). Beginning in 2026, charitable deductions are allowed only for contributions exceeding 1% of taxable income. Contributions that fail the 1% floor are permanently nondeductible. The existing 10% ceiling remains unchanged, and carryforwards are permitted only for contributions disallowed because they exceed that ceiling.  

Cap on Itemized Deduction Value for Top-Bracket Taxpayers 

A new rule under OBBBA imposes a limitation on the value of itemized deductions for high-income individuals. This limit applies to taxpayers who are in the 37% marginal federal income tax bracket. Beginning in 2026, The rule permits only a 35% tax deduction for itemized deductions, including charitable gifts, even though the taxpayer’s income is within the 37% bracket. In other words, the value of the deduction is reduced by 2/37 of the lesser of: (i) total itemized deductions or (ii) the excess of taxable income over the 37% threshold. 

Example: A taxpayer has $800,000 of taxable income and claims $120,000 in itemized deductions. If $180,000 of income is subject to the 37% rate, the reduction is 2/37 × $120,000 = $6,486. The allowable deduction becomes $113,514. 

Increased Excise Tax on Private Colleges and Universities 

The Act increases the 1.4% excise tax that currently exists on the net investment income of private colleges and universities if they have large endowments. The excise tax rates for particular endowments per student will be: 1.4% ($500K – $749,999), 4% ($750K – $1,999,999), 8% (over $2,000,000). The 8% rate will apply to MIT, Harvard, Princeton, Yale, and Stanford. International students are counted in making the endowment per student calculation which will potentially extend the levy to institutions with a higher proportion of international students that would not have otherwise been subject to the tax. More than 50 schools paid the 1.4% tax in 2023. This provision exempts colleges with fewer than 3,000 students from the tax.  

Federal Tax Credit for Gifts to Scholarship Granting Organizations 

OBBBA adds a tax credit for contributions to state-certified program scholarship granting organizations (“SGO”). The dollar-for-dollar tax credit equals 100% of the contribution, up to $1,700 per individual, or $3,400 for joint filers. The program will commence on January 1, 2027. The SGO must be a federally recognized nonprofit, serve at least ten students across more than one school, and allocate 90% of donations to approved educational expenses. SGO’s award scholarships to K-12 students from families that earn no more than 300% of the area median income. The credit is only available for cash gifts and is reduced by any state tax benefit that is received associated with the gift. To qualify, the SGO must be an IRC 501(c)(3) charity. In addition, the donor must reside in a state that has submitted a certified list of eligible SBOs to the IRS. Governor Whitmer has not committed to opt into the program, but state Republicans are pressuring her to do so. 

Permanent Federal Estate and Gift Tax Exclusion Amount 

The current federal estate and gift tax exclusion amount, approximately $14M, is increased to $15M in 2026 to be inflation adjusted in the future. In ten years, the exclusion could be over $20M per person given inflation indexing. This could be changed under a future administration. It is likely advisors will continue to tell wealthy clients to remove highly appreciated or appreciating assets out of their estate so that future appreciation can be removed from estate/taxation on death.  

 NOTE: This material was developed by Community Foundation for Southeast Michigan. It is published with the understanding that neither the publisher nor the author is engaged in rendering legal, accounting, or other professional services. If legal advice or other expert assistance is required, the services of a professional advisor should be sought.