Navigating New Charitable Contribution Limitations Under the OBBBA

The tax landscape for charitable giving has undergone significant shifts following the enactment of the One Big Beautiful Bill Act (OBBBA). Effective for tax years beginning after December 31, 2025, these changes introduce new “floors” for deductions that both corporate and individual taxpayers must navigate. As we move through the 2026 tax year, it is critical for taxpayers to understand how these thresholds may permanently disallow certain contributions or alter the timing of tax benefits.

C Corporate Contribution Thresholds and Permanent Disallowance

C Corporations now face a two-tiered limitation system. While the traditional 10% ceiling on taxable income remains in place for maximum annual deductions, a new 1% “floor” has been introduced. Contributions are only deductible to the extent they exceed 1% of the corporation’s taxable income with some specific modifications.

Crucially, amounts that fall below this 1% threshold are generally disallowed permanently rather than carried forward. If a corporation’s contributions exceed the 10% ceiling, the excess may be carried forward for five years. However, current interpretations of the statutory language suggest that the “floor” amount is only eligible for carryforward in years where total contributions already exceed the 10% cap. This creates a strategic pressure for corporate donors to ensure their annual giving is high enough to avoid losing the deduction for the initial 1% of their taxable income.

Impact on Individual Taxpayers

For individuals who itemize deductions, the OBBBA introduces a 0.5% floor based on their contribution base, which is typically their Adjusted Gross Income (AGI). Similar to the corporate rules, a deduction is only permitted for the portion of charitable giving that exceeds this 0.5% threshold.

The treatment of carryforwards for individuals is particularly nuanced. A disallowed amount below the 0.5% floor is only added to a taxpayer’s carryforward (available for up to five years) if the taxpayer’s total contributions have already hit the standard AGI percentage limits (such as the 60% limit for cash gifts to public charities). If the total giving is below those AGI ceilings, the amount below the 0.5% floor is effectively lost.

For example, a taxpayer with an AGI of $100,000 would face a $500 floor. If they donate $1,200, only $700 is deductible, and the $500 floor amount is permanently disallowed. However, if that same taxpayer donated $65,000, they would first be limited by the 60% AGI cap ($60,000), creating a $5,000 carryforward. The 0.5% floor would then reduce the current year deduction to $59,500, and the $500 “floor” amount would be added to the carryforward, totaling $5,500 for future use.

Interaction with Section 68 and High-Income Limitations

High-income earners must also account for the interaction between the new 0.5% floor and the Section 68 limitation on itemized deductions. The Section 68 reduction is applied after the 0.5% floor has been calculated. For 2026, this limitation reduces itemized deductions by a fraction (2/37) of the amount by which the taxpayer’s AGI exceeds specific thresholds—$640,600 for single filers and $768,700 for married couples filing jointly. This overlapping restriction further diminishes the tax subsidy for charitable giving among the highest earners.

Non-Itemizers and Fiduciaries

Not all taxpayers are subject to these new floor requirements. The OBBBA has reinstated and increased the Section 170(p) deduction for non-itemizers, allowing individuals to deduct up to $1,000 ($2,000 for joint filers) in cash contributions without being subject to the 0.5% floor. Additionally, the floor does not apply to trusts or estates that claim charitable deductions under the fiduciary rules of Section 642(c).