The end of the year is often the optimal time to donate to charity from a tax perspective. If you itemize deductions, you can generally write of most, if not all, of the full amount of your contributions, within generous limits..
But the new “One Big Beautiful Bill Act” (OBBBA) throws a monkey wrench in the works. For the first time in history, the new law creates a “floor” for deducting charitable donations deductions. At the same time, it opens up deductions to non-itemizers as well as itemizers.
[This is part of a Special Series on the tax implications of the broad One Big Beautiful Bill Act, which was enacted in July 2025. It includes a wide range of changes to individual and corporate taxes, deductions, credits, forms and other topics, that affect tax filing starting this year into the future.]
Background: Previously, the deduction for monetary contributions meeting the IRS’ substantiation requirements was limited to 50% of adjusted gross income (AGI), with any remainder being carried forward for up to five years. The Tax Cuts and Jobs Act (TCJA) temporarily increased this threshold to 60% of AGI for 2018 through 2025. Now the OBBBA permanently extends the higher limit for 2026 and thereafter.
In addition, the annual deduction for charitable gifts of appreciated property—say artwork or a rare historical artifact—is limited to 30% of AGI. Once more, any remainder may be carried forward for up to five years. Assuming you’ve owned the property for more than one year, you can deduct is fair market Value (FMV) on the date of the donation, Otherwise, the deductible amount is equal to your initial cost.
Several special rules apply to charitable contributions of property. For instance, you’re required to provide additional tax return information for non-cash contributions exceeding $500. Furthermore, for property valued above $5,000, the taxpayer must obtain an independent appraisal of the property’s value.
Factoring all this in, the basic strategy is to “bunch” charitable donations in a year in which the write-off will provide you with the most tax benefit, such as a year in which you expect to itemize. This is especially true if you’re planning any large gifts of property.
Major changes: The OBBBA adds a few new wrinkles to year-end tax planning. Notably, the new law includes the following changes for individuals:
- Beginning in 2026, charitable deductions for itemizers are limited to the excess above 0.5% of AGI. So, if your AGI is $100,000 and you donate $5,000 this year, your deduction is reduced to $4,500. You get no tax benefit from the first $500 of donations. The disallowed portion may be carried forward to the next year (subject to the annual floor).
- In the past, a charitable deduction of up to $300 was temporarily allowed for non-itemizers, but that expired after 2021. Beginning in 2026, single filers can deduct up to $1,000 of their charitable contributions. Note this deduction is for cash-only contributions. This limit is doubled to $2,000 for joint filers. Unlike the charitable deduction for itemizers, there’s no floor on deductions.
- The new law revives a modified version of the “Pease rule” that reduced certain itemized deductions for high-income taxpayers. The TCJA suspended the Pease rule from 2018 through 2025. Now the OBBBA extends it permanently for 2026 and thereafter by limiting deductions for those in the top 37% bracket.
Where does this leave your clients at year-end? The latest changes require a close examination of each person’s circumstance. Depending on whether or not a client itemizes, among other factors, the client may want to bunch donations in 2025 or postpone them to 2026.
Reach out to clients to inform them of the new tax complications and guide them with their decision-making. Also, for clients who don’t itemize, make sure they are keeping a record of their charitable contributions starting in 2026 – many non-itemizing taxpayers stopped tracking contributions when TCJA was enacted.
Photo credit: CatLane/iStock
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