Rudler is here to help you understand and take advantage of the new charitable giving rules under the One Big Beautiful Bill Act (OBBBA). If you have questions about how these changes affect your tax situation, our team is ready to guide you.
Overview of the OBBBA and Charitable Giving
The OBBBA, effective for the 2026 tax year, introduces several important updates to the rules for deducting charitable contributions. These changes may affect both how much you can deduct and how you plan your giving.
New Deduction Floors and Limits
One of the most significant changes is the introduction of a "floor" for charitable deductions. For individuals who itemize, only the portion of your charitable contributions that exceeds 0.5% of your adjusted gross income (AGI) is deductible. For example, if your AGI is $100,000, the first $500 of your charitable giving is not deductible; only amounts above that threshold count toward your deduction. For corporations, the floor is set at 1% of taxable income, with the existing 10% ceiling remaining in place.
Expanded Opportunities for Nonitemizers
For those who do not itemize, the OBBBA introduces an above-the-line deduction for charitable contributions. Taxpayers taking the standard deduction can now claim up to $1,000 ($2,000 for joint filers) for cash gifts to public charities, excluding gifts to donor-advised funds or supporting organizations. This allows more taxpayers to benefit from charitable giving, even if they don’t itemize deductions.
Permanent 60% AGI Limit for Cash Gifts
Another notable update is the permanent extension of the rule allowing you to deduct up to 60% of your AGI for cash gifts to public charities. This means you can continue to give generously and potentially deduct more, as long as you exceed the new floor and stay within the 60% cap.
Impact on High-Income Taxpayers
High-income taxpayers should be aware that the total benefit of itemized deductions, including charitable contributions, is now capped. If your income exceeds the 37% tax bracket threshold, your itemized deductions are reduced, limiting the value of your deductions to 35 cents per dollar for those in the top bracket.
State Tax Credits and Charitable Contributions
The OBBBA also clarifies the treatment of state and local tax credits received in exchange for charitable contributions. If you receive a state or local tax credit for your donation, your federal charitable deduction must be reduced by the value of the credit, unless the credit is 15% or less of your donation. This prevents taxpayers from receiving a double benefit for the same contribution.
New Federal Credit for Scholarship Donations
Finally, the Act introduces a new federal tax credit for donations to state-approved organizations that provide K-12 scholarships, up to $1,700 per year for individuals. However, you cannot claim both a credit and a deduction for the same contribution, and the credit is reduced by any state tax credit received for the same donation.
How Rudler Can Help
The new rules under the OBBBA make charitable giving more complex, but also offer new opportunities for tax savings with careful planning. Rudler can help you calculate your charitable deduction under the new floor, maximize your deductions and credits, understand the impact of state tax credits, and plan your giving strategy to take full advantage of the new rules. If you have questions or want to review your charitable giving plan for 2026 and beyond, please contact your Rudler advisor.
Important: These are all new changes, and further guidance from the IRS and Treasury Department is expected. The details may change as new regulations and clarifications are issued. Be sure to consult with your tax advisor to understand how these changes affect your specific situation.
RUDLER, PSC CPAs and Business Advisors
This week's Rudler Review is presented by Alexis Ludtke, CPA.
If you would like to discuss your particular situation, contact Alexis at 859-331-1717.
As part of Rudler, PSC's commitment to true proactive client partnerships, we have encouraged our professionals to specialize in their areas of interest, providing clients with specialized knowledge and strategic relationships. Be sure to receive future Rudler Reviews for advice from our experts, sign up today !