Congress passed the One Big Beautiful Bill Act (OBBBA) in July 2025, enacting sweeping changes to the Internal Revenue Code. Most of the change significantly impact 2025 tax returns filed in 2026. Some changes take effect for the tax year 2026 (return filed in 2027). Among the many provisions of the Act taking effect for the 2026 tax year are substantial changes to how contributions—both charitable and political—are treated for federal income tax purposes. This blog outlines the most notable changes and what taxpayers should know when planning their giving strategies.
1. Restoration and Expansion of Above-the-Line Charitable Deduction / AGI Floor for Itemizers
Beginning with the 2026 tax returns (filed in 2027), one of the more taxpayer-friendly provisions in the OBBBA is the return of the above-the-line charitable deduction. These had temporarily existed during the COVID-19 relief period but expired in 2021. Under the new law:
- Up to $2000 ($1000 for single filers) in qualified charitable contributions can now be deducted above-the-line, even if the taxpayer does not itemize deductions.
- This applies to cash contributions made to qualified public charities but does not include donor-advised funds or private foundations.
This change will benefit the millions of taxpayers who claim the standard deduction but still make modest charitable donations.
- 0.5% Adjusted Gross Income (AGI) Floor for Itemizers:
- Individuals who itemize their deductions will only be able to deduct total charitable contributions that exceed 0.5% of their AGI.
- For example, an individual with a $100,000 AGI would only be able to deduct contributions above $500. So, if you make $2,000 in cash contributions, you will only be allowed to deduct $1,500.
- This change is likely to affect the timing of donations, potentially leading donors to bundle or delay contributions to exceed the floor.
2. AGI Limitations for Cash Contributions are Made Permanent
For those who itemize, the OBBBA makes permanent the 60% of AGI limit for cash donations to public charities. It will not revert to 50% as it would have under prior law. This helps itemizers who give large amounts continue to deduct more of their cash gifts.
Carryovers of contributions that exceed the limitation can still be carried over for up to five years, subject to the same AGI cap in the carryover year.
3. Repeal of the Pease Limitation for Contributions
The so-called Pease limitation, which phased out itemized deductions (including charitable contributions) for high-income taxpayers, has been permanently repealed under OBBBA.
- As a result, all allowable contributions can now be fully claimed, regardless of the taxpayer’s income level.
- This provides a more consistent benefit for high-net-worth individuals who historically saw the value of their contributions eroded by phaseouts.
4. No Change to Noncash Contribution Rules—But Enhanced Scrutiny
While the OBBBA does not change the basic rules for deducting noncash charitable contributions (e.g., property, clothing, vehicles), it does:
- Authorize the IRS to increase oversight of inflated valuations and impose harsher penalties for fraudulent appraisals.
- Continue the requirement for third-party appraisals for all noncash contributions over $5,000 (a proposal had been made to reduce that to $2,500, but it did not pass).
- If you itemize, any non-cash contributions you make – such as clothes, food or household goods – are also subject to the new 0.5%-of-AGI floor.
- If you’re taking the standard deduction, you won’t be able to deduct your non-cash contributions since the $1,000/$2,000 limit for non-itemizers applies only to cash gifts.
This is aimed at curbing abuse in the area of high-value, low-substantiation gifts.
Planning Implications
Taxpayers should review their charitable giving strategies in light of these changes:
- Non-itemizers may want to make modest cash donations to take advantage of the restored above-the-line deduction.
- High-income donors may find 2025 a favorable year to accelerate gifts, particularly with the repeal of the Pease limitation and the increased AGI caps.
- Those supporting political causes may receive a small credit if their contributions fall within the new thresholds.
As with all major tax legislation, the devil is in the details. There are AGI limits, definitions, and substantiation requirements that can impact whether a deduction is allowed or disallowed. If you are planning on making a significant donation, I recommend you touch base with your tax professional first.
Conclusion
The OBBBA introduces favorable, though nuanced, changes to the treatment of contributions. For individuals and families who give regularly, these provisions create both opportunities and traps. Taxpayers are advised to consult with a qualified tax professional to ensure compliance and to maximize the benefit of these new rules.