Recent legislation, the One Big Beautiful Bill Act (OBBBA), is set to significantly alter the tax landscape for charitable donations in the United States. The bill introduces both new benefits and limitations, creating a unique window of opportunity for donors in 2025 before more restrictive rules take effect in 2026.
Here’s a summary of what you need to know:
Major Opportunities in 2025
Several provisions that limit the tax benefits of charitable giving for individuals and corporations will not be implemented until 2026. This creates a strategic opportunity for donors to accelerate their giving into the 2025 tax year to take advantage of the current, more favorable rules.
- Front-loading Donations: Donors might consider “bunching” several years’ worth of planned donations into 2025. This strategy can lock in a higher tax deduction before the rules change.
- Donor-Advised Funds (DAFs): You can contribute a larger amount to a DAF in 2025 to secure the tax benefit now, then recommend grants to your favorite charities over the coming years.
Key Changes in 2026 for Individual Donors
Starting in 2026, the tax incentives for giving will change for many.
- Deduction Floor: Itemizers will only be able to deduct charitable contributions that exceed 0.5% of their adjusted gross income (AGI).
- Cap on Deductions: An overall cap on itemized deductions will effectively reduce the maximum tax benefit for top earners to 35 cents per dollar donated.
- New Benefit for Non-Itemizers: Those who take the standard deduction will be able to claim a new “above-the-line” deduction for cash donations up to $1,000 for single filers and $2,000 for joint filers.
IRA and SALT Cap Considerations
- IRA Giving: Qualified Charitable Distributions (QCDs) of up to $108,000 (adjusted for inflation) directly from an IRA remain a highly effective way to give for those over age 70. These distributions are excluded from income and bypass the new AGI floor and deduction caps.
- SALT Cap Increase: The bill temporarily raises the state and local tax (SALT) deductions cap from $10,000 to $40,000, with an income phaseout starting at $500,000 for joint filers. This cap and threshold will increase by 1.0% per year through 2029, then revert to $10,000. This means more taxpayers in high-tax states will itemize deductions, instead of relying on the standard deduction.
Impact on Corporate Giving
Corporations will also face new rules in 2026. Deduct contributions that exceed 1% of their taxable income, up to a ceiling of 10%. Charitable contributions below the 1% threshold can’t be carried forward, only those above the 10% ceiling can be. With corporate giving currently making up 7% of total charitable donations, this change may reduce future contributions.
Plan for Maximum Impact
The new law introduces complex changes. While the opportunity to maximize tax benefits in 2025 is clear, strategies like bunching deductions will remain valuable in the future to overcome the new deduction floor.
A thoughtful plan can help ensure your philanthropic goals have the greatest possible impact. Please reach out to the Saville team if you have any questions about the impact of these changes.