Giving Tuesday: Donate in 2025 or 2026?

OB3 Act changes mean some people should consider accelerating or delaying donations

The One Big Beautiful Bill Act (OB3 Act) has several provisions directly and indirectly related to charitable giving. Due to these changes, taxpayers may be better off accelerating charitable deductions to 2025 or delaying them to 2026.

Provisions Beneficial to Donors

§70424 of the OB3 Act permanently reinstated the deduction for cash contributions for non-itemizers and increased the deductible amount to $1,000 ($2,000 on a joint return). There is no income limitation for this deduction. This new deduction takes effect starting in tax year 2026.

§70425(b) of the OB3 Act made the increased 60% AGI limitation on certain cash contributions permanent, which has been in effect since 2018.

Provisions Not Beneficial to Donors

§70425(a) of the OB3 Act added a 0.5% adjusted gross income (AGI) floor on the itemized charitable contribution deduction. Amounts disallowed under the new floor are only carried forward if a carry forward arises from another provision (e.g., cash contributions exceeding 60% of AGI). This new limitation takes effect starting in tax year 2026.

§70426 of the OB3 Act added a 1% taxable income floor on deductible charitable contributions for corporations in addition to the 10% taxable income limit. Amounts disallowed under the new floor are only carried forward if a carry forward arises from another provision (e.g., contributions exceeding 10% of taxable income). This new limitation takes effect starting in tax year 2026.

§70111 of the OB3 Act permanently terminated the so-called “Pease” limitation, but replaced it with a new itemized deduction limitation that reduces the value of itemized deductions for taxpayers falling in the 37% bracket. The reduction effectively limits the benefit of itemized deductions for high-income taxpayers to 35% of the total, rather than 37%. This new limitation takes effect starting in tax year 2026.

Who Should Consider Shifting Donations

If a taxpayer will not itemize deductions, they should consider:

• Deferring cash contributions until 2026 and later to be able to deduct them as a non-itemizer charitable deduction.

• Selling property that was planned to be donated, and making cash contributions in 2026 and later to be able to deduct them as a non-itemizer charitable deduction.

If a taxpayer itemizes deductions but generally does not contribute enough to exceed the 0.5% of AGI floor, they should consider “bunching” charitable deductions for multiple tax years into one year (i.e., making 2025 and 2026 contributions in 2025, and 2027 and 2028 contributions in 2027). This may allow a partial deduction benefit every other year, or a full deduction if deductions are bunched in tax year 2025.

Suppose a taxpayer itemizes deductions and is in the 37% bracket, and makes similar charitable contributions in 2025 and 2026. In that case, they will generally lose approximately 10% of the tax reduction value due to these changes. These taxpayers should consider making a lump-sum donor-advised fund (DAF) contribution in 2025 to avoid the 2026 changes affecting charitable deductions. Since itemized deductions reduce taxable income for §199A threshold purposes, this may also provide a boost to a taxpayer’s §199A deduction, creating further tax reduction.

Taxpayers in the 37% bracket are subject to a $10,000 state and local tax (SALT) deduction cap; therefore, many of them may not have itemized deductions that are significantly greater than the standard deduction. For some of these taxpayers, claiming the standard deduction plus the non-itemizer contribution deduction may result in greater tax reduction value than itemizing deductions.

Convert Charitable Deductions to Business Deductions

A charitable organization payment is better as a §162 trade or business deduction than a §170 charitable deduction, especially after the OB3 Act and its new limitations on charitable contribution deductions. All self-employed taxpayers should consider implementing this strategy in 2026 and beyond.

Read my prior edition on why this is and how it can be done:

How to Shift Charitable Deductions into Business Deductions

Learn More from Enrolled Agents on Substack

This Tuesday edition is part of a Giving Tuesday collaboration with other great tax experts writing on Substack. Please check out their publications if you haven’t already:

• Matt’s Tax Firm Insights by Matt Gaylor, EA

• Tiffany Huntington, EA by Tiffany Huntington, EA

• Financial Guardians by Brad Messner, EA

• The Buzz about Taxes by Manasa Nadig, EA

• Thoughts on Tax by Jeremy Wells, EA, CPA

• Josh & Taxes by Josh Youngblood, EA

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