At a Glance
The One Big Beautiful Bill (OBBB) introduces an annual reduction equal to 0.5% of adjusted gross income (AGI) for charitable contribution deductions beginning in 2026. Taxpayers and advisors should understand how this change impacts giving strategies, particularly for high-income individuals who frequently make large donations. By accelerating contributions into 2025, using bunching techniques, and exploring asset-based giving, taxpayers can maximize deductions before the full impact of the OBBB’s phasedown is felt.
Contents
- The OBBB and Charitable Giving
- Understanding the 0.5% AGI Reduction
- Planning Opportunities Before 2026
- Accelerating Contributions into 2025
- Multi-Year Grouping of Contributions
- Asset-Based Giving Strategies
- Looking Ahead
The OBBB and Charitable Giving
The recently enacted One Big Beautiful Bill (OBBB) introduced sweeping tax reforms that affect individuals, businesses, and nonprofit organizations. Among its provisions is a change that will reduce the amount a taxpayer can claim as a charitable deduction based on a percentage of adjusted gross income (AGI).
Historically, taxpayers could deduct charitable contributions up to a certain percentage of AGI, providing a powerful incentive for philanthropy. Under the OBBB, beginning in 2026, that limit will change to 0.5% of AGI each year. While the change may sound small at first glance, over time it significantly impacts high-income taxpayers and those who make large charitable contributions.
For taxpayers and their advisors, the message is clear: proactive planning can help preserve the tax efficiency of charitable giving. Let’s walk through what this new rule means and how to prepare before the phasedown begins.
Understanding the 0.5% AGI Reduction
The OBBB introduces an erosion of the charitable contribution deduction limit. Starting in 2026, the maximum allowable deduction is reduced by 0.5% of AGI annually. For example:
- If the current AGI limit is 60%, taxpayers would look at AGI, take 60% of AGI, and, as long as charitable contributions did not exceed that amount, get a full deduction. Any excess is carried forward to future years. Now, charitable contributions will be reduced by 0.5% of AGI and no carry forward is allowed.
- Over a decade, that cumulative reduction becomes significant, particularly for donors who consistently contribute at or near the maximum threshold.
This adjustment not only reduces immediate tax benefits but may also change how taxpayers approach philanthropy. Those who have historically front-loaded or structured gifts based on deduction limits will need to reassess their timing and strategies.
Planning Opportunities Before 2026
The period before the phasedown begins—especially in 2025—offers taxpayers a unique window to optimize charitable giving strategies. By planning ahead, you can capture the full deduction benefit while aligning contributions with long-term philanthropic goals.
Accelerating Contributions into 2025
One of the most straightforward strategies is to accelerate donations into the 2025 tax year, when the full AGI limits still apply. Taxpayers anticipating sizable contributions in the near future should consider making those gifts sooner rather than later.
A donor-advised fund (DAF) can be especially useful here. With a DAF, you can make a large, upfront contribution in 2025 (and claim the full deduction that year), while granting the funds to charities gradually over time. This approach offers both tax efficiency and flexibility in supporting organizations on a multi-year basis.
Multi-Year Grouping of Contributions
For donors unable to accelerate all gifts into 2025, a “bunching” strategy may make sense. Instead of making equal annual contributions, you can combine several years’ worth of giving into one tax year, then skip or minimize contributions in the following year.
This technique allows you to maximize itemized deductions in years when they exceed the standard deduction. It also pairs well with the timing of other deductions, such as medical expenses or state and local taxes (SALT), and can be paired when AGI is expected to be lower in a given year creating stronger tax efficiency overall.
Asset-Based Giving Strategies
Cash gifts aren’t the only way to give. Appreciated assets such as securities, real estate, or closely held business interests often provide better tax leverage. By donating these assets directly, you can potentially avoid capital gains taxes while still claiming a charitable deduction (subject to AGI limits).
For individuals with substantial charitable goals, more advanced structures may be appropriate. Charitable remainder trusts, charitable lead trusts, or private foundations can preserve the value of deductions while also offering estate planning benefits. These vehicles allow for more sophisticated strategies that combine philanthropy with long-term wealth transfer objectives.
Looking Ahead
The OBBB’s 0.5% annual reduction of AGI limits on charitable deductions may seem minor in the short term, but it represents a meaningful change for high-income donors and those who give generously each year. The key takeaways for taxpayers and advisors are:
- Act early: Accelerate major gifts into 2025 while the full AGI limits still apply.
- Strategize timing: Use bunching techniques and coordinate with other deductions for greater efficiency.
- Think beyond cash: Leverage appreciated assets or charitable vehicles to maximize both tax benefits and philanthropic impact.
Thoughtful planning now can help you continue to meet charitable goals while navigating the evolving tax landscape.
If you’re considering significant charitable contributions, now is the time to discuss your strategy. Reach out to your tax advisor to explore how accelerating, bunching, or restructuring your giving can preserve the full value of your deductions before the OBBB changes take effect.
Dalton Myers joined ARB as an intern in 2016 and became a manager in 2022. He specializes in providing tax services to auto dealerships, individuals, and private client service.
