One Big Beautiful Bill and Charitable Giving

On July 4, 2025, President Donald Trump signed the One Big Beautiful Bill Act (OBBBA). Although the primary aim of this legislation is to extend the expiring provisions of the Tax Cuts and Jobs Act (TCJA) and modify federal spending, it also includes measures related to charitable giving.

2017 Tax Cuts and Jobs Act (TCJA) Extensions

Adjusted Gross Income Limits: The legislation permanently extends the current provision allowing deductions for cash contributions to 501(c)(3) public charities up to 60% of adjusted gross income (AGI).

New Standard Deduction Amounts: Starting in the 2025 tax year, the standard deduction will increase by $1,000 for single filers and $2,000 for married couples filing jointly, following an earlier increase by the TCJA. This results in a standard deduction of $15,750 for individuals and $31,500 for joint filers, with future adjustments for inflation. The increase under the TCJA had made itemization, including deductions for charitable contributions, less common.

Income Tax Brackets: The new legislation has solidified the existing income tax brackets, making them permanent. The tax brackets remain set at 10%, 12%, 22%, 24%, 32%, 35%, and 37%.

Estate and Gift Tax Exemption: For the 2026 tax year, the federal estate and gift tax exemption will rise to $15 million, with subsequent adjustments for inflation. As a result, over 99% of estates will not be liable for federal estate taxes, positioning lifetime charitable contributions as the main method for obtaining charitable deductions for most taxpayers. It is important to note that since beneficiaries still face income tax effects, leaving tax-deferred accounts to charity may be a more broadly used strategy than tactics to reduce estate taxes.

New Changes Introduced by OBBB

The law introduces several new rules and changes to others. Here are the highlights:

* Taxpayers who itemize will only be eligible to deduct charitable contributions that exceed 0.5% of their adjusted gross income (AGI). For instance, a couple with an AGI of $300,000 would be able to deduct donations only if they surpass a $1,500 floor. Corporations can only deduct charitable contributions to qualified charities if these exceed 1% of their taxable income. This will take effect starting in the 2026 tax year.

* Non-itemizers may deduct cash donations to charities. The rules allow for up to $1,000 for individuals (or $2,000 for married filing jointly). This will take effect starting in the 2026 tax year. This provision does not adjust for future inflation, and certain types of donations, such as those made to donor-advised funds or private non-operating foundations, are not eligible for the deduction. 

* The tax advantages for itemized charitable deductions are limited to 35%, even for individuals in the 37% marginal tax bracket. Consequently, high-income taxpayers with $1,000 of itemized charitable deductions above the floor will receive a $350 deduction instead of the previous $370. This will take effect starting in the 2026 tax year.

* The state and local tax (SALT) deduction cap was increased from $10,000 to $40,000, only for the years 2025 to 2029 (with an annual 1% increase from 2026–2029). It phases out starting at modified adjusted gross Income (MAGI) of $500,000 ($250,000 for married filing separately), but the deduction cap will not drop below $10,000. Among the major new deductions under the law, this is the lone provision available only to taxpayers who itemize. As such, the SALT cap change has the biggest potential impact on charitable contributions, which may be more attractive to someone who changes from standard to itemized deductions as a result.

* Non itemizers may also now take advantage of these deductions (which do not, however, reduce AGI):

    – Tip income (up to $25,000) for 2025–2028; phases out starting at $150,000 MAGI ($300,000 for married filing jointly).

    – Overtime pay up to $12,500 (or $25,000 for married filing jointly) for 2025–2028; phases out starting at the same thresholds as for tip income.

    – Interest on car loans up to $10,000 for 2025–2028; phases out starting at $100,000 MAGI ($200,000 for married filing jointly); applies only to new U.S.-assembled cars that are owned (not leased).

    – An additional $6,000, for taxpayers age 65 or older, for 2025–2028; phases out starting at $75,000 MAGI ($150,000 for married filing jointly).

* A new tiered tax will now apply to the investment earnings of university endowments, with rates varying from 1.4% to 8%. The highest rate is imposed on institutions with endowment assets exceeding $2 million per student. Private colleges with fewer than 3,000 tuition-paying students are exempt from this tax. Although only 56 colleges and universities are currently subject to the higher rate, this number is anticipated to rise over time. While this affects some recipients of charitable gifts, it doesn’t directly affect the donors.

What Does This Mean?

In light of the 2025 tax law changes introduced by the One Big Beautiful Bill Act, nonprofit organizations and donors alike are facing a new and complex environment. While the universal charitable deduction may encourage more small-scale giving, the higher threshold for itemized deductions and increased estate tax exemption could make major gifts and corporate donations less attractive from a tax perspective.

Given these shifts, donors may benefit from accelerating their charitable contributions in 2025—potentially through strategies such as bunching multiple years’ donations into a single year or leveraging donor-advised funds for added flexibility and impact. Additionally, considering a mix of cash and non-cash gifts may offer greater benefits, especially as recent legislation introduces new complexities for itemizers. Proactively reviewing philanthropic strategies in consultation with financial and tax professionals can help donors optimize both the impact of their gifts and their tax advantages, ensuring continued support for the causes that matter most.