Charitable Gifting and Estate Tax Update (OBBBA)

With recent updates to tax laws based on the passing of the “One Big Beautiful Bill Act” there are significant changes to charitable contributions, and estate and gift taxes. Here’s a breakdown of what’s changing and how it could affect you starting in 2025.

Charitable Deduction Updates

Permanent and Expanded Charitable Deduction for Non-Itemizers

Starting on January 1, 2026, non-itemizers can benefit from a permanent above-the-line deduction for charitable cash contributions. Here’s how this impacts you:

• New Deduction Limits: Up to $1,000 for single filers and $2,000 for joint returns.
• Eligible Contributions: Only cash donations to qualifying organizations as described in section 170(b)(1)(A). Contributions to donor-advised funds and supporting organizations do not qualify.

New 0.5% Floor on Individual Donations

• Before the Changes: All charitable contributions above the standard deduction were eligible, subject to certain limits.
• Starting After 2025: Individuals can only deduct charitable contributions that exceed 0.5% of their Adjusted Gross Income (AGI). Unused contributions can be carried forward under the new rules.

1% Floor for Corporate Donations

• Before the Changes: Corporations could deduct up to 10% of their taxable income with no minimum threshold.
• Starting After 2025: Corporate charitable contributions must now exceed 1% of taxable income to qualify, with the 10% deduction limit still in effect. Carryforward rules also apply.

Estate and Gift Tax Updates

Permanent Increase in Estate and Gift Tax Exemption

The estate and gift tax exemption has been permanently raised to $15 million, indexed for inflation, starting in 2026.

• What’s New: This replaces the previous exemption of approximately $13 million, which was scheduled to revert to $5 million after 2025.
• The permanent increase allows for larger tax-free transfers of wealth.

Portability of Unused Exemption

• No Change to portability of the Deceased Spousal Unused Exclusion (DSUE), which remains permanent.
• The higher $15 million exemption now serves as the base for DSUE, making it even more beneficial for estate tax planning.

Begin reviewing your charitable giving plans now to maximize deductions under the new rules. Consult with a tax professional to prepare for these changes.