Navigating the New Charitable Giving Rules Under the One Big Beautiful Bill Act: Floors, Ceilings and Strategic Planning

The One Big Beautiful Bill Act (“the Act”) was signed into law in July 2025 and contains provisions affecting charitable giving starting with tax year 2026. With the implementation of both a floor and a ceiling on deductions, and a minimum charitable deduction for all taxpayers, strategic planning is essential. This article covers these new rules and discusses ways to maximize the tax benefits of charitable giving, for both taxpayers who itemize deductions as well as those who do not.

Charitable Deduction for Non-Itemizers

For taxpayers who do not itemize deductions, the Act permanently reinstates a deduction for cash contributions made to qualified charities of $1,000 ($2,000 in case of a joint return). This is available starting with tax year 2026. Cash contributions to donor-advised funds and private foundations are generally not eligible for this deduction.

Extension of Contribution Limitation for Cash Gifts

The Act also permanently extends the contribution limitation for cash gifts to public charities to 60% of adjusted gross income. It had been scheduled to expire at the end of tax year 2026 and revert to 50%.

A New 0.5% Floor on Charitable Deductions

Starting tax year 2026, individual taxpayers who itemize deductions will have their charitable contributions be subject to an annual floor of 0.5% of their “contribution base”. The term “contribution base” generally refers to adjusted gross income (AGI). This will apply to all taxpayers, regardless of their income level. However, higher income earners will see the most impact. This does not limit how much you can give – just how much you can deduct.

• Example 1 – Let’s assume that the AGI for a taxpayer filing as a single individual is $1,000,000 and he made a charitable contribution of $100,000. The amount that is deductible will be $100,000 less $5,000 (0.5% of $1,000,000), i.e. $95,000.

Depending on the type of contribution, additional limitations may apply. For example, deductions for cash contributions to a public charity are limited to 60% of AGI, while deductions for long-term capital gain property, i.e., appreciated stock are limited to 30% of AGI. Amounts not deducted due to these limitations can be carried forward for five subsequent tax years.

The 0.5% floor is applied first to contributions with lower percentage limits.

• Example 2 – Let’s assume that a taxpayer with an AGI of $200,000 makes two significant charitable contributions to a public charity in the same year: $150,000 in cash and $80,000 of appreciated stock. As stated above, deductions for cash contributions to public charities are limited to 60% of AGI, while deductions for contributions of capital gain property are limited to 30% of AGI. This means that before applying the new floor, the taxpayer could deduct up to $120,000 of the cash gift and $60,000 of the stock gift, leaving $30,000 and $20,000, respectively, to carry forward under the usual five-year rule.

However, starting in 2026, the new 0.5% AGI floor comes into play. For this taxpayer, the floor equals $1,000 (0.5% of $200,000). Under the ordering rules, this floor is applied first to contributions with the lowest percentage limit—in this case, the stock gift. As a result, the allowable deduction for the stock gift drops from $60,000 to $59,000, while the cash gift remains at $120,000 because the floor was fully absorbed by the stock contribution.

After applying both the percentage limits and the floor, the taxpayer’s total deduction for the year is $179,000, rather than the $180,000 allowed under the old rules. The $1,000 reduction due to the floor is carried forward along with the excess contributions resulting in carryforward of $30,000 of cash contributions and $21,000 of stock contributions ($20,000 due to the AGI limitation plus $1,000 floor).

Once a contribution is carried forward, it will again be subject to the 0.5% floor. For planning purposes, if a taxpayer is close to exceeding the AGI limitations, it could be beneficial to have the contribution amount exceed the limitation as the amount disallowed under the floor would then be carried forward and not lost.

New Ceiling on Itemized Deductions for High-income Taxpayers

Taxpayers in the 37% tax bracket will face an additional ceiling on tax benefits from all itemized deductions, including charitable contributions starting in tax year 2026. The benefit of their itemized deductions will effectively be capped at 35%. For 2026, the 37% tax bracket (IRS releases tax inflation adjustments for tax year 2026, including amendments from the One, Big, Beautiful Bill) starts at $640,600 for single taxpayers and $768,700 for married couples filing jointly.

This is how the ceiling is calculated:

2/37 times the lesser of:

1. Portion of income taxed at 37%, or
2. Total itemized deductions after applicable floors

Using the same facts as Example 1, if AGI is $1,000,000, the amount that will be taxed at 37% will be $1,000,000 – $640,600 = $359,400. Let’s assume that charitable contributions are the only itemized deduction that taxpayer is claiming. The itemized deduction after applying the 0.5% floor will be $95,000. The ceiling on the itemized deductions will be 2/37 times the lesser of:

1. $359,400, or
2. $95,000

i.e. 2/37 x 95,000 = $5,135.

The total itemized deductions allowed in this example will be $95,000 less $5,135 = $89,865.

Prior to this ceiling, itemized deductions would have been $100,000. As a result of the Act, the taxpayer’s itemized deduction will now be $89,865, effectively reducing the benefit of the charitable contribution by 10%.

Planning Strategies to Mitigate the Floor and Ceiling

Accelerate charitable giving in 2025 – No floor or ceiling applies in 2025, so the tax savings from contribution deductions will be higher in 2025. Using a donor-advised fund (DAF) will allow taxpayers to claim the deduction in 2025 while distributing funds to charities over time.

Bundle contributions to exceed the floor – Rather than making donations over multiple years, consider combining them into a single year to ensure that the deduction exceeds the floor.

Qualified Charitable Distributions (QCDs) – The floor and ceiling rules do not apply to QCDs made directly from IRA accounts. Taxpayers aged 70 ½ and over who have IRAs can make charitable contributions to qualified charities directly from their IRA and exclude the distribution from their income. The annual limit for QCDs in 2025 is $108,000 for each individual taxpayer. Thus, a couple filing jointly can each contribute $108,000 from their IRAs. This is a good strategy to use when the taxpayer is subject to required minimum distributions (RMD) as the QCDs count towards their RMD.

Monitor your income and tax brackets – Taxpayers who are in the 37% tax bracket should monitor their income to see if there are any strategies to lower their income and tax bracket. For example, deferring income to future years or accelerating deductions, maximizing contributions to pre-tax retirement accounts and health savings accounts and investing in tax-exempt bonds.

Conclusion

The One Big Beautiful Bill Act introduced significant changes to the tax treatment of charitable contributions and itemized deductions starting with tax year 2026, particularly for high-income taxpayers. By understanding the provisions and using the strategies mentioned above, taxpayers can continue to support charitable causes while optimizing their financial outcomes.

Contact us for any questions or if you would like to discuss how these new provisions might affect you.

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