OBBBA materially changed the federal charitable deduction starting January 1, 2026. Itemizers face a new 0.5% of AGI floor before any contribution becomes deductible. Top-bracket itemizers face a 35% benefit cap. Corporations face a 1% of taxable income floor (with the existing 10% ceiling unchanged). Non-itemizers get a new $1,000 / $2,000 above-the-line deduction. The 60% AGI limit for cash gifts to public charities is now permanent. This guide walks through the §170 mechanics post-OBBBA, the planning consequences, and the strategies that still work.
1. 0.5% of AGI floor for individual itemizers (new IRC §170(b)(1)(I))
2. 1% of taxable income floor for corporations (amended §170(b)(2)(A))
3. 60% of AGI cash limit to public charities made permanent (was set to expire end of 2025)
4. 35% benefit cap on itemized deductions for taxpayers in the 37% bracket
5. $1,000 / $2,000 above-the-line deduction for non-itemizers (new §170(p))
All five take effect for tax years beginning after December 31, 2025.
Under new IRC §170(b)(1)(I), individual itemizers may deduct charitable contributions only to the extent the aggregate contributions exceed 0.5% of the taxpayer's "contribution base" (i.e., AGI without regard to NOL carrybacks).
Example. Taxpayer with AGI of $400,000 makes $20,000 of cash contributions to public charities in 2026. The 0.5% floor is $2,000. The first $2,000 is non-deductible. $18,000 is potentially deductible, subject to the 60% AGI cap ($240,000), so all $18,000 is allowed.
The 0.5% reduction applies in a specific order under §170(d)(1)(C). The least favorable contributions are reduced first, preserving the most favorable contributions to be deducted. The order:
This ordering is taxpayer-favorable in concept (preserve cash to public charities, which already has the most generous AGI cap). In practice, for taxpayers whose only contributions are cash to public charities, the ordering is moot.
OBBBA caps the benefit of itemized deductions at 35% for taxpayers in the 37% top marginal bracket. A donor in the 37% bracket who contributes $10,000 (after the 0.5% floor) saves only $3,500 in federal tax, not $3,700.
This is a 2-cent-per-dollar reduction in benefit at the top end. It applies to all itemized deductions for top-bracket taxpayers, not just charitable. The mechanism is structured as a deduction-conversion: the deduction is allowed at 35% rather than at the 37% marginal rate.
Carryover amounts from contributions made before January 1, 2026 are NOT subject to the 0.5% floor when used in later years. Pre-2026 carryforwards retain their pre-OBBBA character and can be used against future income without the floor reduction.
Carryforwards arising in 2026 or later years are subject to the 0.5% floor in each year they are used. For a taxpayer with $300,000 of contributions in 2026 and $500,000 of AGI, the §170 percentage cap allows only 60% × $500,000 = $300,000. After the 0.5% floor of $2,500, $297,500 is deductible in 2026. The unused $2,500 carries forward and is subject to the 0.5% floor again in the carryforward year.
New IRC §170(p) creates a permanent above-the-line deduction for non-itemizers:
Excluded: Donor-advised funds (DAFs) and private non-operating foundations are NOT eligible for the above-the-line deduction. The exclusion is intentional - the legislators wanted the deduction to flow to operating charities, not pass-through vehicles.
Non-itemizers who currently donate to a DAF should consider whether to shift recurring small gifts to a qualified operating charity to capture the new above-the-line benefit. Up to $2,000 of joint giving fully bypasses the 0.5% floor (which only applies to itemizers).
The 60% of AGI limitation for cash contributions to public charities was scheduled to expire at the end of 2025, reverting to the historical 50% cap. OBBBA made the 60% limit permanent. This is one of the favorable changes - donors retain the higher AGI ceiling for cash giving.
| Property Type / Donee | AGI Limit | Carryforward |
|---|---|---|
| Cash to public charity | 60% (permanent under OBBBA) | 5 years |
| Cash to private foundation | 30% | 5 years |
| Appreciated long-term capital gain property to public charity (FMV deduction) | 30% | 5 years |
| Appreciated long-term capital gain property to private foundation (basis or 30% AGI election) | 20% | 5 years |
| Ordinary income property (basis only) | 50% | 5 years |
| Conservation easement (qualified real property) | 50% (100% for farmers/ranchers) | 15 years |
The 0.5% floor applies on top of these caps. The order of application: percentage cap is calculated first; the floor is then applied.
Pre-OBBBA, corporations could deduct charitable contributions up to 10% of taxable income (computed before the deduction). OBBBA amended IRC §170(b)(2)(A) to add a 1% floor:
For a corporation with $10 million of taxable income, the floor is $111,000 and the ceiling is $1,000,000. The first $111,000 of giving produces no tax benefit. Giving between $111,000 and $1,000,000 is deductible. Giving above $1,000,000 carries forward.
Bunching - concentrating multiple years of charitable contributions into a single tax year - was already a useful strategy post-TCJA (with the higher standard deduction). OBBBA's 0.5% floor amplifies the benefit. The math:
Donor with AGI of $500,000 wants to give $10,000/year to charity. Other itemized deductions: $30,000.
Each year: $10,000 contributions, $2,500 floor, $7,500 net charitable. Total itemized = $7,500 + $30,000 = $37,500. Vs. standard deduction of $32,200 (joint, 2026). Itemize, save $5,300 over standard. Over 3 years: $15,900 of net itemizing benefit.
Year 1: $30,000 contributions, $2,500 floor, $27,500 net charitable. Total itemized = $27,500 + $30,000 = $57,500. Vs. standard $32,200, itemize, save $25,300 over standard. Years 2 and 3: standard deduction (no charitable giving). Over 3 years: $25,300 of net itemizing benefit. Difference: $9,400 in additional tax savings from bunching.
The 0.5% floor is calculated on AGI in the year of giving, so concentrating giving into one year still incurs only one floor. Spreading giving across three years incurs three floors. Bunching becomes more valuable as AGI rises.
DAF contributions are still deductible at the time of contribution to the DAF (subject to the 0.5% floor, AGI percentage limits, and 35% benefit cap). DAFs remain a clean bunching vehicle: contribute a multi-year amount in one year, then distribute to operating charities over time without further deductibility considerations.
OBBBA did NOT change the DAF deduction mechanics for itemizers. What changed: DAFs are excluded from the new $1,000/$2,000 above-the-line deduction for non-itemizers. Itemizers using DAFs are unaffected by that exclusion.
Private non-operating foundations remain subject to the 30% AGI cap on cash and the 20% cap on appreciated property. Both are also excluded from the above-the-line deduction.
Substantiation rules under §170(f) survive OBBBA unchanged:
Bunching is now the default strategy. The 0.5% floor punishes annual giving and rewards concentration. Donors should plan multi-year giving cycles, alternating bunching years and standard-deduction years.
Use a DAF to time the deduction. Contribute the bunched amount to a DAF in the bunching year (capture the deduction), then distribute to operating charities over time. This decouples the tax-deduction timing from the cash-flow-to-charity timing.
Appreciated stock still beats cash. A donation of appreciated long-term capital gain property to a public charity gives the donor an FMV deduction (subject to 30% AGI cap) and avoids the embedded capital gain. The tax benefit is potentially 35-40 cents per dollar of fair market value, vs. 35 cents on cash. Bring this into the bunching analysis.
QCDs from IRAs are unchanged and still useful. Donors over 70½ can make qualified charitable distributions of up to $111,000 (2026, indexed) directly from an IRA to a qualified public charity. The QCD is excluded from gross income and does not run through the §170 framework - meaning the 0.5% floor and 35% benefit cap do not apply. This is now meaningfully more valuable than equivalent cash giving for high-AGI donors.
Non-itemizers should redirect to operating charities. The new $1,000 / $2,000 above-the-line deduction (§170(p)) is gold for non-itemizers, but only for direct giving to operating charities. Recurring DAF contributions by non-itemizers should be reconsidered.
Corporations with small giving programs face a real choice. Either consolidate giving into the years where the program clears the 1% floor, or accept that smaller giving will produce no tax deduction. Some corporations may shift support to trade-or-business expenditures under §162 where the giving has a clear business purpose.