Charitable Giving and the One Big Beautiful Bill: Why 2025 Might Be the Year to Act

The recently passed One Big Beautiful Bill includes a significant change to the deductibility of charitable contributions beginning in 2026. Specifically, the new law imposes a 0.5% floor on adjusted gross income (AGI) for charitable deductions. This means that only the portion of your charitable giving that exceeds 0.5% of your AGI will be eligible for a deduction on your federal income tax return, subject to the normal limitations we encounter for charitable contributions. The disallowed floor amount does not become a carryover to a subsequent year.

What This Means for Taxpayers Who Itemize Deductions

Under current law, eligible taxpayers can deduct up to 60% of their AGI for qualified cash contributions, assuming other itemized deduction limitations don’t apply. There is no floor, so every dollar of qualified giving is deductible up to the limit.

However, starting in 2026, the new 0.5% floor acts as a hurdle. For example, if your AGI is $500,000, the first $2,500 of charitable contributions will not be deductible. Only amounts above that floor will reduce your taxable income.

This floor effectively reduces the tax benefit of charitable giving for many taxpayers, especially those who give modest amounts relative to income.

In addition, starting in 2026 for individuals in the 37% top income tax bracket who itemize their deductions rather than take the standard deduction, the tax benefit from all itemized deductions is capped at 35%, including charitable deductions.

Planning Opportunity: Accelerate Gifts into 2025

If you are planning a substantial charitable gift—whether it’s to a donor-advised fund, public charity, or private foundation—it may make sense to complete the gift by December 31, 2025, in order to maximize your deduction under the current rules.

Takeaway

This upcoming change underscores the importance of timing in charitable planning. We encourage clients to review their charitable giving strategies now. If a major gift is already on your radar for 2026, consider pulling it into 2025 to preserve full deductibility. As always, coordinate with your F+H tax advisor to ensure your plan is customized for your situation.