Non-Itemizers

One of my favorite parts of OBBBA is the new tax deduction available to non-itemizers for charitable contributions. Starting in 2026, single filers can donate $1,000, and those married filing jointly (MFJ) can donate $2,000 a year and receive an above-the-line deduction on their federal income taxes. Since most do not itemize, this is a great opportunity for more people to get a tax benefit from donating to their favorite charity. Keep in mind that donor-advised funds (DAFs) and private non-operating foundations are not eligible for this donation deduction.

Hopefully, non-profits will see an increase in donations due to this. The CARES Act allowed a similar deduction of $300 in 2020 and 2021, and approximately 90 million taxpayers claimed it in those 2 years. Currently, the amount is not indexed for inflation, so hopefully that will change in the future. 

Itemizers

Starting in 2026, for taxpayers who itemize and are in the top bracket (37%), the deduction is now capped at 35%. For example, a $1,000 charitable contribution for someone in the 37% bracket would result in a $350 tax savings compared to $370. This means that high-income individuals will receive a smaller tax benefit from their charitable donations. Since this doesn’t start until 2026, anyone in the top bracket who makes large charitable contributions may want to give more in 2025 than planned to get a larger benefit. 

A second change for itemizers is a new floor for charitable deductions. This also begins in 2026. Charitable deductions will only apply to the amount donated above .5% of your Adjusted Gross Income (AGI). Bunching donations into a single tax year may be a good strategy to increase the tax benefit. 

Itemizers & Non-Itemizers

The last change to charitable endeavors from OBBBA is a new tax credit for donations made to organizations that grant scholarships to private or religious K-12 schools. The credit is for up to $1,700, and it starts in 2027. Tax credits are more valuable than tax deductions, especially for those in lower tax brackets. A credit is a dollar-for-dollar reduction to your tax bill. The value of a deduction depends on your tax rate and is worth less than a tax credit of the same amount. 

Reminder: SALT Cap May Impact Itemizing Status

The recent changes to the State and Local Tax (SALT) deduction cap may lead some taxpayers who previously used the standard deduction to begin itemizing again. Because of this, it's more important than ever to consult a tax professional before making charitable giving decisions, to ensure you're maximizing your tax benefits based on your individual situation.

Have questions about how these changes affect your charitable giving? Contact us, we’re happy to help you navigate your options!