New legislation introduced in the reconciliation bill of this summer known as the “One Big Beautiful Bill Act” (OBBBA) will impose new restrictions on itemized deductions. Changes impact deductions allowed for charitable contributions as well as overall itemized deductions. The changes will affect you when you itemize deductions However, the changes offer some good news if you take a standard deduction. We recommend taking careful note of your long-term and year-end giving strategies.
Individual Taxpayers: Impact on Contributions to Charities
OBBBA introduces a limitation on the amount of charitable contributions. It imposes a restriction on the maximum itemized deduction allowed for charitable donations beginning with the tax year 2026. The itemized deduction for charitable contributions can only be claimed for contributions that exceed 0.5% of the individual’s Adjusted Gross Income (AGI) in the current tax year.
Donations that are less than the 0.5% AGI ceiling will no longer be eligible for an itemized deduction. Positively, the maximum amount of the deduction allowed for charitable donations has been raised permanently up to 60% of taxpayer’s AGI. Prior to the OBBBA, it was set to fall to 50% beginning in 2026. However, the OBBBA forever keeps the 60% threshold.
In addition, taxpayers who do not itemize can now take advantage of an above-the-line deduction of up to $1,000 for taxpayers who are single and $2,000 for couples who file jointly. The deduction will be in addition to what is already available. This modification will give those who are eligible for the standard deduction an additional benefit from their charitable contributions.
The changes coming up give taxpayers the opportunity to decide the time of their charitable contributions. Two tax planning tools worth considering include Donor Advised Funds and charitable donation bunching. Donor-Advised Funds are accounts that allow taxpayers to disperse funds to charities in time, while also taking a complete deduction for the year they make a contribution into the funds.
Charitable bunching is a method of combining multiple years of donations into a single tax year. Both strategies can be beneficial tax planning tools that can maximize the advantages of a tax payer’s charitable giving program.
Individual Taxpayers: Effect on Itemized Deductions
In addition to the restriction on charitable contribution deductions, the OBBBA introduces a new limit for overall itemized deductions. Beginning in the 2026 tax year, those who are in the 37% tax bracket will see a decrease in the allowed itemized deductions.
Particularly the amount of these deductions will be decreased by the lesser of: (1) 2/37 of the total amount of otherwise allowable itemized deductions or (2) 2/37 of the amount that the taxable income (calculated prior to itemized deductions) exceeds the threshold of the 37% bracket.
This rule decreases the tax benefits of itemized deductions to high-income taxpayers, meaning that those who are in 37% of the bracket get an amount similar to taxpayers who are in the 35% bracket.
The overall itemized deduction limit is imposed following the limitation of individual itemized deductions, like state and local taxes (SALT) or charitable donations.
Business Taxpayers: Impact on Charitable Donations
For corporate taxpayers, the OBBBA has maintained the cap of a tax deduction allowable for charitable donations, that is currently 10% of tax-deductible income. However, beginning in the 2026 reporting year, a limitation of 1% of taxable income will be introduced for the deductible portion of charitable contributions.
Contributions above the threshold of 10% and less than the limit of 1% cannot be deducted; however, they can be carried forward for a maximum of five years.
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The changes made by the OBBBA to the itemized deduction and charitable contribution rules represent a significant shift in tax planning, for both businesses and individuals. With the introduction of new floors and limitations, and increasing options for non-itemizers, this law encourages more deliberate giving as well as a strategic approach to timing of deductions.
Before these changes take effect in the year 2026, taxpayers should be proactive in collaborating with their tax advisors to ensure they align their financial and charitable goals with the latest regulations, and to ensure that they get the most benefit from their contributions and remain in line with the ever-changing tax law. Contact your tax professional or the Parr and Ibarra’s tax team if you have questions or require assistance in understanding how the recently adopted legislation affects you or your business.
