November 28, 2025
Effects of the One Big Beautiful Bill Act (OBBBA) on Charitable Giving in 2025-2026
2017 – TCJA and its effects
The Tax Cuts and Jobs Act of 2017 ("TCJA") had a profound impact on the tax experience of individuals, in particular the means by which they could give to charitable and other 501(c)(3) non-profit organizations and enjoy the tax advantages of doing so. For example, it nearly doubled the Standard Deduction (from $6,350 for individuals and $12,700 for married couples filing jointly to $12,000 and $24,000 respectively). It also lowered the types and quantities of itemized deductions, while capping State and Local Tax (SALT) deductions at $10,000 per year.
The prime takeaway of the TCJA with respect to charitable giving is that the legislation made it significantly less advantageous to itemize deductions instead of taking the standard deduction. Prior to the TCJA–when the standard deduction was lower–many people exceeded its maximum threshold between their other taxes, such as state income and personal property taxes. They therefore were already electing to, and benefitting from, itemizing their deductions, and so charitable giving only increased their itemized deductions, giving a direct benefit by lowering their taxable income. With the TCJA so greatly increasing the standard deduction threshold, coupled with provisions making itemization more difficult, it suddenly became far less beneficial to itemize. The TCJA therefore produced a challenge to the charitable giving preference of many, since charitable giving had previously produced a greater tax benefit to those who itemized instead of taking the standard deduction prior to its enaction.
2025 – OBBBA builds upon the TCJA
Fast-forwarding eight years, the One Big Beautiful Bill Act (OBBBA) was enacted in July 2025 and reaffirmed several elements of the TCJA. It further elevated the standard deduction by $1,000 for individuals and $2,000 for married couples filing jointly, making the 2025 figures $15,750 and $31,500, respectively. In addition, it built on the previous legislation by permanently maintaining the present income tax brackets and further raised the federal estate and gift tax exemption up to $15 million starting in 2026. Finally, it affirmed on a permanent basis the option to deduct cash-funded charitable donations (to public qualifying charities) up to 60% of one’s Adjusted Gross Income (AGI), an increase from the older 50% mark.
In addition to building upon previously established structure, the OBBBA introduced several fresh nuances that affect the arena of charitable donation. First, it raised the permitted SALT deduction figure by four times ($10,000 to $40,000), which will make it more accessible to itemize deductions, countering the restrictive effect of the TCJA on such moves. Second, it introduced a new 35% cap on the charitable deduction figure beginning in 2026, meaning that taxpayers in the 37% tax bracket will see a reduced deduction for charitable giving starting in 2026. Third, it instituted a minimum AGI requirement (a floor) for itemized charitable deductions, set at 0.5%, meaning a donation has to exceed that percentage of the payor’s AGI to qualify for the deduction. Finally, it instituted a bonus deduction for those who do not itemize and choose to take the standard deduction ($1,000 for individuals and $2,000 for married couples filing jointly) for cash donations to qualified charitable organizations.
2026 and beyond – present opportunities for charitable giving
Focusing now on the future of charitable giving, there are several opportunities to maximize its potential in light of the large-scale changes to the tax framework discussed above.
One strategy in particular may be the use of donor-advised funds (DAFs), which are essentially investment accounts for charitable giving. Transfers of funds to DAFs are immediately deductible and assets can grow tax-free inside the DAF, after which the transferor may authorize grants of the funds to charities of their choice over time. A DAF can provide additional benefits if the sum transferred exceeds the standard deduction because this may allow a taxpayer to itemize their deductions. In addition, a DAF strategy in 2026 might be beneficial for a donor whose year-to-year contributions would not typically exceed the 0.5% AGI floor to qualify for deductibility, because the donor could make a "bundle" transfer to the DAF that would exceed the threshold to qualify (taking a greater deduction in that year), and subsequently taking the standard deduction in following years and have the DAF make charitable donations.
Another point of emphasis relates to the new additional charitable deduction – $1,000 individual and $2,000 married couple filing jointly – begun by the OBBBA. This should be emphasized because it pertains to those who do not itemize and instead take the standard deduction, which as mentioned is elevated in its own right ($15,750 for individuals and $31,500 for married couples filing jointly). The additional deduction only applies to cash donations and notably does not work for DAF contributions, but it still provides an effective means for those taking the standard deduction to garner a further tax advantage going forward.
Finally, high-income taxpayers who fall within the 37% tax bracket need to be aware of the new 35% cap that the OBBBA introduces so they are not caught off-guard while making charitable donations in 2026 and future years. As discussed, the new 35% hard ceiling cuts off charitable deduction benefits across the board and this applies to unused deductions that roll over to 2026 as well. If possible, such donors may consider making such a move in 2025 before this change becomes active. Such donors may still make donations in 2026 and future years, but should be aware that the tax benefit will be slightly curtailed.
Arlington Law Group regularly assists clients to make decisions with charitable and other tax planning techniques. Please contact us to arrange a consultation to discuss your specific situation.
