How Individuals and Charities Can Benefit from Changes to Charitable Deductions Before and After OBBA
The One Big Beautiful Bill Act (“OBBA”) was signed into law on July 4, 2025, which includes many striking changes to charitable deductions that start on January 1, 2026. Donors and donees of charitable gifts must be aware of the new rules to maximize their philanthropic goals. Find out the impact the changes will have on donations and how donors and nonprofits can prepare and respond before and after the changes. If you have questions about charitable giving in New York, please consider scheduling a consultation with the experienced New York philanthropy attorneys at Abelaj Law, P.C. by calling 212-328-9568.
Good: Boost in Charitable Deductions
1) Individual taxpayers who take the standard deduction are allowed an additional charitable deduction of up to $1000 for single filers or up to $2000 for joint filers.
Recipient limitations: Donations to Donor Advised Funds (“DAF”), supporting organizations, or non-operating private foundations are not eligible for the standard charitable deduction.
2) Donations to charities that provide scholarships to K-12 students.
Deduction: Starting in 2027, nonrefundable credit of up to $1700 for gift of cash or marketable securities. Available to both standard and itemized filers, the credit will reduce the other charitable deductions allowed to the taxpayer.
Bad: Reduction in Charitable Deductions
1 – Taxpayers who itemize deductions will only be allowed to deduct charitable contributions exceeding of 0.5% of taxpayer’s AGI.
- For example, if a donor’s AGI is $500,000, they will be allowed to take a charitable deduction on the excess over $2,500. Donations must be to a 501(c)(3) organizations and deductions for gifts to DAFs, private foundations or supporting organizations are allowed.
2 – Corporations will only be allowed to deduct charitable gifts exceeding of 1% of taxable income up to a maximum of 10%.
- Impact to Matching Gifts Programs. Corporations either reduce or increase the number of available charities that may receive a matching gift. It will be a year or two until we see the outcome.
Take Action: Maximizing the Rules for Your Benefit
1) Standard Filers. Consider whether waiting until 2026 to make a charitable contribution will significantly improve your taxable income or if the result would be nominal as compared to the charity’s loss. Keep in mind that your favorite charities rely on your donations, and they may be more negatively impacted than you can imagine. If you skip the 2025 contribution, increase it in 2026.
2) Itemized Filers. Make your charitable contributions NOW before 12-31-2025 in order to receive the maximum charitable deduction. For 2026, make a larger contribution in one year to front-load the gifts that would have been made over several years (sometimes called “bunching gifts”). Bunching will allow you to receive a charitable deduction while providing the cumulative gift to the charity “in advance.”
3) Charities. Contact donors now to make contributions before 12-31-2025, expressing the benefits of receiving a full charitable deduction this year without being subject to the floor. Coordinate with your fundraising team to identify and segment donors who might fit into the standard deduction filing or the itemized filing.
- Identify donors who make smaller, annual gifts and tailor a fundraising message to highlight the benefit of charitable contributions starting in 2026 that were not previously available.
- For large recurring donors or those at the borderline of the 0.5% floor, communicate with them NOW Before 12-31-2025 and share the benefits of making a charitable contribution before December 31, 2025. For 2026, tailor fundraising messaging to the benefits of “bunching gifts” in one year.
4) Supporting Organizations and Private Foundations. Focus your fundraising efforts on itemized filers who can receive a charitable deduction when making large donations or bunching gifts. If you have a website, consider updating the donation page to provide information and direct the donor to discuss with their tax adviser.
Additional Limitations
- Deduction for cash donations to public charities is capped at 60% of AGI (30% of AGI for appreciated assets). OBBA made the 60% cap permanent.
- Carry-forward for 5 years is still allowed, subject to the same limitations.
Consult with a Philanthropy and Charity Attorney Today
Being aware of the tax changes is critical when making charitable gifts. Whether you are a donor or a donee; an individual giver or a charitable recipient, the new laws will impact your strategy to maximize tax benefits. Discussing the tax changes with a philanthropy attorney may ensure that you take steps to fit your philanthropic goals. If you want to learn more about philanthropy planning in New York, please consider scheduling a consultation with the Abelaj Law, P.C. by calling 212-328-9568 to discuss how we can assist you in this process, including developing policies and procedures to receive large donations in order to avoid jeopardizing tax-exempt status.