OBBBA and Charitable Giving

The One Big Beautiful Bill Act (OBBBA) is now law, bringing sweeping changes to every taxpayer, including modifications to charitable deductions. As a result, it’s important to understand the new landscape and how it may affect your clients’ tax planning when donating to their favorite charities. 

• Permanent Increased AGI Limit for Cash Donations: For your clients who itemize deductions on Schedule A, cash contributions to public charities and certain private foundations may be deductible up to 60% of their adjusted gross income (AGI). OBBBA permanently extended this 60% limit. Unused deductions due to this limit can be carried forward for up to five subsequent years. 

• Above-the-Line Deduction for Non-Itemizers: Beginning in 2026, individuals who do not itemize deductions can claim a charitable deduction of up to $1,000 for unmarried individuals and $2,000 for joint filers. To claim this deduction, the charitable contribution must be made in cash to public charities (contributions to donor advised funds and private foundations are not eligible for this deduction). 

• New Floor for Itemizers: Beginning in 2026, individuals who itemize charitable donations will face a 0.5% AGI floor. This means that itemizers may only deduct contributions exceeding 0.5% of their AGI. For example, with an AGI of $500,000, the first $2,500 of charitable donations would not be deductible. Unused deductions due to this floor can be carried forward for up to five subsequent years. 

• 2% Cut for Top-Bracket Itemizers: OBBBA introduced a new rule which effectively reduces the benefit of itemized deductions to individual taxpayers in the top tax bracket of 37% by 2%. In other words, the value of a charitable deduction for your clients in the top tax bracket of 37% will be treated as if they were in the 35% bracket. For example, assume your client is in the 37% bracket and itemizes $10,000 of charitable donations (after accounting for the new 0.5% AGI floor discussed above). Even though the client is in the 37% bracket, their charitable deduction reduces their tax liability by only $3,500 (not by $3,700).  

• New Floor for C Corporations: Beginning in 2026, C corporations (and Limited Liability Companies taxed as C corporations) will face a 1% floor, making corporate charitable contributions tax beneficial only when donations exceed 1% of the corporation’s taxable income. As a reminder, C corporations also have a cap on charitable deductions, which is 10% of the corporation’s taxable income. 

• Qualified Charitable Distributions (QCDs): Individuals aged 70½ or older should consider making a qualified charitable distribution from their traditional IRA directly to a qualified charity. QCDs count toward the account owner’s required minimum distribution (RMD), reduce their AGI (resulting in reduced income tax liability), and bypass both the need to itemize and the 0.5% floor, making QCDs more beneficial under the new rules. 

• New Tax Credit for Scholarship Contributions: Beginning in 2027, a new income tax credit of up to $1,700 will be available to individuals making cash contributions to state-certified, tax-exempt “scholarship granting organizations.” These organizations must meet strict state and federal standards, including the requirements to spend at least 90% of contributions on scholarships, provide scholarships for eligible elementary and secondary school students only, and distribute funds equitably without favoring any specific schools or religious groups. If a taxpayer claims this credit, they may not also itemize the same contribution on their Schedule A. Further guidance on this credit is expected. 

Planning Considerations

• Standard Deduction Filers: Starting in 2026, non-itemizers will have more incentive to give cash, thanks to the above-the-line charitable deduction. 

• Itemizers: Clients who itemize may benefit from bunching charitable contributions into a single tax year—especially ones with lower AGI—to maximize deductibility under the 0.5% floor. 

• Life Insurance and Charitable Giving: Depending on your clients’ goals and objectives, incorporating life insurance into their charitable giving plans may be very valuable, providing a structured, tax-efficient way to leave a lasting impact. Check out our consumer-approved brochure: Charitable Giving and Life Insurance. Cat No 107400(0624). 

As the charitable giving landscape broadens and becomes more complex, proactive planning is essential. No matter what your clients’ charitable giving goals may be, these new rules present new opportunities – opportunities which should be carefully considered and integrated into their broader financial and tax strategies. 

For questions, please reach out to any member of the Advanced Sales team. 

The companies of National Life Group and their representatives do not offer tax or legal advice. For advice concerning your own situation, please consult with your appropriate professional advisor.

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