With year-end tax planning and the season of giving approaching, many individuals may be considering donating to their favorite charity. The One Big Beautiful Bill Act (OBBBA) made changes to the rules on charitable contributions that warrant special consideration, particularly for those in higher tax brackets. Today’s OBBBA Insight focuses on charitable giving for high-income individuals.

If you’re considering charitable giving, 2025 may be your year. New tax provisions under the OBBBA make giving in 2025 significantly more advantageous than waiting until 2026. Here’s why:

Bigger Deductions in 2025

  • State & Local Tax (SALT) Deduction Increase: Up to $40,000, expanding the number of taxpayers who may benefit from itemizing.
  • 60% AGI Limit Retained: You can still deduct up to 60% of your Adjusted Gross Income (AGI) for cash contributions to public charities—no change from prior years, but this benefit has been permanently extended.

2026 Brings New Restrictions

  • Charitable Deduction Floor: In 2026, only donations above 0.5% of your AGI will be deductible.
  • High-Income Deduction Limits: A new limitation on itemized deductions also kicks in for taxpayers in the highest tax bracket—shrinking the tax impact of your charitable gifts.

Limitation Details for 2026

Two limitations created by the OBBBA may reduce the tax benefit of charitable contributions for high-income taxpayers starting in 2026. The first limitation imposes a floor of 0.5% of AGI on the itemized deduction for charitable contributions. Only contributions greater than the 0.5% floor are deductible.

The second limitation is an overall restriction on itemized deductions for taxpayers in the top tax bracket (37%). The OBBBA caps itemized deductions for taxpayers in the 37% bracket to the amount that would be allowed if they were in the 35% bracket. Specifically, a taxpayer’s itemized deductions are reduced by 2/37 (or 5.405%) of the lesser of (1) total itemized deductions; or (2) the amount of taxable income exceeding the threshold for the 37% bracket. In 2025, the 37% bracket begins at $626,350 for single filers and $751,600 for married individuals filing jointly.

How does this work in practice?

Assume a married couple with AGI of $1,000,000 donates $50,000 to charity. The 0.5% AGI floor means their $50,000 charitable contribution deduction will be reduced by $5,000 (0.5% * $1,000,000) to $45,000. Under the overall limit on itemized deductions, the $45,000 deduction is further reduced by 5.405%, or $2,432.25, which results in a deduction of approximately $42,568. Thus, the interplay between these two limitations has the effect of reducing the taxpayers’ charitable contribution deduction by nearly $7,500.

Takeaway

Because both limitations take effect in 2026, high-income taxpayers should consider maximizing their charitable contributions before December 31, 2025. Other factors, including charitable contribution carryovers and a taxpayer’s other itemized deductions, may affect an individual’s giving strategy. Therefore, it is important to consult with your Dean Dorton advisor or other tax professional to determine the best approach for you.