Effective for taxable years beginning after December 31, 2025, OBBBA changes charitable contribution treatment for both taxpayers who do not elect to itemize their deductions and taxpayers who do elect to itemize their deductions. The change for taxpayers who do not elect to itemize their deductions is a beneficial above-the-line deduction for charitable cash contributions not in excess of $1,000 ($2,000 in the case of a joint return) that are made to qualified operating charities, but does not include a charitable contribution to a donor-advised fund (“DAF”).

Taxpayers electing to itemize their deductions for tax years beginning after December 31, 2025, will be subject to a new 0.5% floor (AGI multiplied by 0.5%) that will limit charitable contributions to amounts in excess of the floor. Let’s illustrate this change by way of a simple example. If a taxpayer’s 2026 AGI is $250,000 and the taxpayer made charitable contributions of $20,000, the first $1,250 of charitable contributions would not be deductible because of the 0.5% floor. The remaining $18,750 is eligible for deduction (subject to AGI limitations). (See Mitchell, “Charitable Contribution Planning – And Headaches,” Tax Notes Federal (August 4, 2025), for further discussion of the 0.5% floor and the complexities of the carryforward rules.) In addition, for taxpayers in the 37% tax bracket, under §68 itemized deductions (including charitable deductions) will be further reduced by 2/37 of the lesser of (i) the total amount of itemized deductions, or (ii) the amount by which the taxpayer’s taxable income (before itemized deductions) exceeds the dollar amount at which the 37% bracket begins.

A charitably minded taxpayer may want to consider establishing a DAF in 2025 to accelerate into 2025 what would have been future charitable contributions in order to circumvent the 0.5% floor and the tax rate limitation (if applicable). By accelerating charitable contributions to a DAF in 2025, the taxpayer will recognize an immediate charitable deduction (subject to the AGI limitations) as an itemized deduction, but retain the discretion as to when the charities will receive the funds (e.g., the taxpayer directs the DAF to distribute funds to the charities based on the taxpayer’s planned giving strategy over a period of years). Also, the limitations discussed above do not apply to a qualified charitable distribution (often referred to as a “QCD”) – a donation made directly from a taxpayer’s IRA to a qualified charity.

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