The One Big Beautiful Bill Act (OBBBA) introduced several changes that may cause you to rethink your charitable giving strategy. Some provisions create new opportunities to maximize your tax benefits, while others introduce new limitations that may require more careful planning.

Let’s start with the positive changes:

Non-itemizers can take charitable deductions for cash donations starting in 2026.

Starting in 2026, individuals can take charitable deductions for cash donations even if they don’t itemize.

This is a revival of a similar allowance that was permitted in 2020 and 2021. At the time, individuals who didn’t itemize were still allowed to deduct up to $300 of cash contributions.

The OBBBA brought back and expanded this benefit — but with a few changes.

• Deduction caps are higher.
  In 2020 and 2021, the deduction for single filers was capped at $300. Starting in 2026, non-itemizers can deduct up to $1,000 of qualifying cash charitable contributions (or $2,000 for joint filers). To qualify, donations must be made in cash to public charities or certain private operating foundations — donations to donor advised funds or private foundations aren’t eligible.
• Deduction doesn’t reduce AGI.
  The new deduction is considered a below-the-line deduction. It can still lower your taxable income, but it won’t reduce your adjusted gross income (AGI). This is different from the 2020/2021 version, which was an above-the-line deduction.

Lowering AGI is often more powerful than simply reducing taxable income because many other tax calculations are tied to AGI. But even though this version of the deduction doesn’t lower AGI, the benefit is still significant and worth paying attention to.

• This provision is permanent.
  Unlike the temporary $300 deduction in 2020 and 2021, this provision is a permanent addition to the tax code. This gives taxpayers more certainty when planning charitable donations in the coming years.

A new tax credit is available for contributions to K-12 scholarship programs.

Beginning January 1, 2027, a federal tax credit of up to $1,700 is available for taxpayers who donate cash to qualifying Scholarship Granting Organizations (SGOs).

This tax credit is quite limited, but it can be a big benefit to people donating to these types of organizations. Here are a few of the limitations:

• Taxpayers can’t receive both a federal and state credit for the same donation. If they do receive a state credit, their federal credit must be reduced by that amount.
• The SGO can’t be a private foundation.
• The SGO must provide scholarships to students in primary or secondary education.
• The credit is nonrefundable, which means it can’t produce a refund beyond the individual’s tax liability.

This isn’t a deduction; it’s a credit. This means that taxpayers can reduce their tax liabilities dollar-for-dollar up to $1,700, making it quite a powerful new tax incentive.

The 60% AGI limit for cash donations was made permanent.

Prior to the TCJA, taxpayers were generally allowed to deduct cash contributions to public charities up to 50% of their adjusted gross income (AGI). The TCJA temporarily increased this limit to 60% beginning in 2018, but it was scheduled to expire at the end of 2025.

The OBBBA made the 60% limit permanent. This helps taxpayers who make significant cash donations to continue receiving a tax benefit for their donations. And because this allowance is permanent, taxpayers have greater certainty when building long-term charitable giving plans.

More taxpayers will be able to itemize this year.

Since 2018, the deduction that taxpayers could take for state and local taxes (like property and state income tax) was capped at $10,000. As a result, many taxpayers no longer saw a meaningful benefit from itemizing — they were better off taking the standard deduction.

The OBBBA temporarily raised this limit to $40,000, increasing 1% annually through the year 2029 (subject to certain income limitations).

But... what does this have to do with charitable contributions?

For some taxpayers, the expanded SALT deduction cap could make itemizing worthwhile again. If that happens, charitable contributions may once again create a noteworthy tax benefit, which is something that many taxpayers haven’t been able to claim since the SALT cap was introduced in 2018.

But a quick word of warning: the cap drops back down to $10,000 starting in 2030, so take advantage of this $40,000 cap while you can.

As you can see, the OBBBA created several new opportunities for taxpayers to receive a tax benefit from donating to charity. However, not all changes are favorable. The law also introduced new limitations that could reduce the tax benefits for some taxpayers.

Contributions must exceed a certain “floor” before they’re deductible.

Beginning in 2026, taxpayers who itemize can only deduct charitable contributions that exceed a certain threshold. That threshold is calculated as 0.5% of your AGI. Here’s how it might work:

Let’s assume your AGI is $250,000. With this new 0.5% floor, you cannot deduct the first $1,250 of donations you make to charity ($250,000 AGI x 0.5% = $1,250). This means that if you donated $2,000 to qualifying organizations, only $750 of it will be deductible.

For taxpayers who make smaller charitable gifts each year, the new deduction floor could eliminate their tax benefit entirely. Taxpayers who make larger donations may still receive a substantial deduction, but a portion of their contributions will no longer be deductible.

Reduced tax benefit for taxpayers in the top tax bracket.

Starting in 2026, taxpayers who are in the highest tax bracket (37%) will see a reduction in the tax benefit they receive from charitable contributions.

Typically, a taxpayer in the 37% tax bracket could reduce their tax liability by 37 cents for every dollar they donated to charity. Under the OBBBA, though, their benefit is capped at 35 cents per dollar donated. Here’s a quick example:

A taxpayer in the 37% tax bracket who donates $20,000 in cash to charity would have previously been able to reduce their tax liability by approximately $7,400 ($20,000 x 37%). Under the new rules, they could only reduce their tax liability by $7,000.

How might your charitable giving strategies need to change?

The OBBBA doesn’t necessarily require you to change your strategy, but it might be worth your time to review it so that you’re taking advantage of all your options. Here are a few questions to consider:

• Should I itemize or take the standard deduction?
  The temporary increase in the SALT deduction cap may allow you to benefit from itemizing again.
• When should I be donating?
  Donation timing is always important, but with the new 0.5% floor for charitable donations, it might make sense to bunch multiple years of charitable contributions into a single year.
• Do any of my donations qualify for the K-12 scholarship program tax credit?
  If you’re already donating to K-12 scholarship programs, make sure the organization qualifies as a Scholarship Granting Organization so that you qualify for the credit. Assuming you have the tax liability to absorb it, the credit is generally more valuable than a charitable deduction.
• Am I tracking my charitable donations?
  If you haven’t been able to itemize in the past, you may not have prioritized tracking your charitable contributions. Now that non-itemizers can also get a tax benefit from donating to charity, it’s important for you to keep proper records of your donations.

If charitable giving is important to you, it should be included in your tax strategy. Contact your CRI tax advisor about how these changes may affect your charitable giving plans.