The One Big Beautiful Bill Act didn’t just make headlines for its bonus depreciation and state and local tax deduction changes. Hidden in its thousands of pages are significant modifications to how both itemizers and non-itemizers can deduct charitable contributions starting in 2026. While the changes might seem straightforward at first glance, the interaction between new floors, carryforwards, and existing percentage limits creates complexity that warrants careful planning.

Non-Itemizers Get a New Charitable Deduction

Starting in 2026, taxpayers who claim the standard deduction can deduct cash charitable contributions—up to $1,000 for single filers and $2,000 for married filing jointly. This provision, codified in IRC Section 170(p), represents a significant expansion from the temporary pandemic-era rules that allowed only $300 or $600 per taxpayer in 2020-2021.

There’s an important catch: contributions to donor-advised funds and supporting organizations don’t qualify for this deduction. Only direct cash gifts to public charities count toward the limit. For many taxpayers who stopped itemizing after the TCJA’s standard deduction increase, this provides the first meaningful charitable tax benefit in years.

The New 0.5% AGI Floor for Itemizers

For those who itemize, OBBBA introduces a new hurdle beginning in 2026: charitable contributions are only deductible to the extent they exceed 0.5% of adjusted gross income (AGI). This floor, established under IRC Section 170(b)(1)(I), operates differently than you might expect.

The statute requires you to first calculate what’s “otherwise allowable” under the existing percentage limitations—60% for cash to public charities, 30% for appreciated property, and so on. Only then do you apply the 0.5% floor, which disallows deductions in a specific statutory order starting with capital-gain property categories before touching cash contributions. This ordering matters significantly when planning your giving strategy.

How Carryforwards Work Under the New Rules

The interaction between the 0.5% floor and charitable carryforwards under IRC Section 170(d)(1)(C) adds another layer of complexity. If you already have a carryforward because your contributions exceeded the percentage limits, any amount disallowed by the 0.5% floor gets added to that existing carryforward, maintaining the standard five-year window.

However, if the 0.5% floor is your only limitation—meaning you didn’t exceed any percentage caps—the disallowed amount doesn’t carry forward at all. It’s simply lost. This distinction becomes critical when timing large charitable gifts.

The Practical Workflow for 2026 Returns

When preparing returns for 2026 and beyond, tax professionals will need to follow this sequence: First, apply the AGI percentage limits to determine what’s “otherwise allowable” for each type of contribution. Second, apply the 0.5% floor using the statute’s internal ordering rules. Third, determine any carryforwards, including amounts disallowed by the floor if there’s an underlying percentage-limit carryover. Finally, for high-income taxpayers, apply the new limitation that caps the benefit of itemized deductions.

What Didn’t Change

OBBBA made permanent the 60% of AGI limit for cash gifts to public charities, ending years of uncertainty about whether this enhanced limit would survive. All existing non-cash percentage limits remain unchanged, including the 30% limit for appreciated property donated to public charities.

The New High-Income Limitation

For taxpayers in the 37% bracket, the tax benefit of itemized deductions is effectively capped at approximately 35% through a formula that reduces itemized deductions by 2/37 of the lesser of total itemized deductions or taxable income above the 37% bracket threshold. This calculation applies after all other charitable deduction limitations and carryovers.

Real-World Examples

Consider a married couple with $120,000 of AGI who doesn’t itemize. If they give $2,400 in cash to their church in 2026, they can deduct $2,000 under the new Section 170(p) provision. The excess $400 provides no tax benefit since they’ve hit the cap for joint filers.

For itemizers, the math gets more complex. Take a single taxpayer with $300,000 of AGI who donates $5,000 of appreciated stock plus $12,000 cash to public charities. Both gifts are comfortably under their respective percentage limits of 30% and 60% of AGI. The 0.5% floor equals $1,500. Since the statutory ordering requires the property gift to absorb the floor first, only $3,500 of the stock donation is deductible, while the full $12,000 cash contribution remains deductible. Total deduction: $15,500, with no carryforward since percentage limits weren’t exceeded.

The carryforward rules become relevant with larger gifts. A couple with $200,000 AGI who donates $80,000 of appreciated stock and $100,000 cash faces both percentage limits and the floor. The property donation exceeds the 30% AGI cap ($60,000), creating a $20,000 carryover. The cash donation is under the 60% AGI cap ($120,000). The 0.5% floor ($1,000) further reduces the current-year property deduction to $59,000, and that $1,000 gets added to the carryforward, bringing it to a total of $21,000. Total deduction: $159,000, consisting of $59,000 property deduction and $100,000 cash deduction.

Planning Strategies for the New Landscape

Bunching contributions remains a powerful strategy, perhaps even more so with the 0.5% floor. By consolidating multiple years of giving into a single tax year, you can clear the floor more efficiently and maximize deductions in years when you itemize. Donor-advised funds offer timing flexibility for this approach, though remember they don’t qualify for the non-itemizer deduction.

Qualified Charitable Distributions (QCDs) from IRAs continue to offer unique advantages for those 70½ and older. QCDs bypass the income calculation entirely, avoiding both AGI-based limitations and the new floor while satisfying required minimum distributions. The annual limit, indexed for inflation, reaches $108,000 in 2025.

Non-itemizers should focus on direct cash contributions to public charities to capture the new $1,000/$2,000 benefit.

High-income taxpayers face a more complex calculation. The new cap means the actual tax benefit of charitable deductions may be lower than expected for those in the 37% bracket. These taxpayers should model various scenarios, considering QCDs, appreciated asset gifts, and bunching strategies to maintain both charitable impact and tax efficiency.

Looking Ahead

The OBBBA’s charitable provisions represent a mixed bag for taxpayers. While non-itemizers gain a meaningful new deduction and the 60% cash limit becomes permanent, the 0.5% floor and high-income limitations add complexity that requires careful planning. The interplay between these provisions, especially the ordering rules and carryforward interactions, makes professional guidance more valuable than ever.

These changes take effect for tax years beginning after December 31, 2025, giving taxpayers time to adjust their giving strategies. As with many OBBBA provisions, further IRS guidance may clarify application in specific situations.

Our team at Geffen Mesher is ready to help you navigate these changes and optimize your charitable giving strategy. Whether you’re a regular itemizer dealing with the new floor, a non-itemizer looking to maximize the new deduction, or a high-income taxpayer facing the new limitation that caps the benefit of itemized deductions, we can help you maintain your charitable goals while maximizing tax efficiency.