How the One Big Beautiful Bill Impacts Philanthropy

The One Big Beautiful Bill Act (OBBBA), signed into law on 4 July 2025, introduced significant changes to charitable deductions for donors and is primarily effective beginning in the 2026 tax year. Below is a summary of the key provisions affecting charitable giving:

Above-the-Line Deduction for Non-Itemizers

Beginning in 2026, taxpayers who do not itemize deductions can claim a permanent charitable deduction of up to $1,000 for single filers and $2,000 for married couples filing jointly. This applies to cash contributions to qualified charities, and donor advised funds are excluded from this provision.

Impact: This reinstates and expands a temporary provision from the CARES Act, potentially encouraging charitable giving among the approximately 90% of taxpayers who take the standard deduction, which is permanently set at $15,750 for single filers and $31,500 for joint filers (adjusted for inflation and more on this below).  For example, if an individual in the 24% tax bracket makes a $1,000 contribution to your organization, then the donor would receive $240 in tax savings.

New Floor on Itemized Deductions

For taxpayers who itemize, charitable deductions are only allowable to the extent they exceed 0.5% of a donor’s adjusted gross income (AGI). This floor applies to contributions made on 1 January 2026 and beyond.

Impact: This reduces the deductible amount for itemizers. For example, a donor has an AGI of $420,000.  The donor can only deduct charitable gifts over $2,100, or 0-.5% of AGI.

Cap on Tax Benefits for High-Income Itemizers

For taxpayers in the 37% tax bracket, the tax benefit for itemized charitable deductions is capped at 35% of the donated amount, effective in 2026. For example, a $1,000 donation provides a $350 deduction instead of $370.

Impact: This reduction could discourage large gifts from high-income donors, who may consider accelerating contributions to 2025 to benefit from the current 37% rate. However, the permanent extension of the 60% AGI limit for cash contributions to qualified charities provides some continuity for itemizers.

The permanent higher standard deduction

As noted above, the OBBB permanently extends the higher standard deduction. For 2025, the standard deduction is $15,750 for single filers and $31,500 for married couples filing jointly and will be annually indexed for inflation.

Impact: According to the Indiana University Lilly School of Philanthropy, this higher standard deduction reduced annual giving by $20 billion in the law’s first year in 2017. To ensure this reduction in giving is not permanent, organizations may consider:

• Promoting multi-year pledges from a donor advised funds (DAF) with the strategy of bunching gifts to the DAF above the standard deduction level to permit itemizing.
• Promoting gifts of qualified charitable distributions (QCDs) by donors aged 70.5 years and older that trigger a tax benefit that is not a charitable deduction, i.e., avoiding income tax on the transfer. For donors waiting to take their required minimum distribution from an IRA until age 73, most should wait until then to consider gifts of QCDs.
• Promoting appreciated noncash asset gifts of publicly traded stock, real estate, etc., that will escape capital gains tax liability even if an income tax deduction is not claimed.

Federal Estate Tax Exemption

Beginning on 1 January 2026, the federal estate tax exemption is $15M for an individual and $30M for a married couple – indexed to inflation beginning in tax year 2027.  The federal estate tax rate remains at 40 percent.

The One Big Beautiful Bill includes a mix of incentives and restrictions for charitable giving.  The above-the-line deduction for non-itemizers may increase charitable giving from “average” donors, but the new floor and cap for itemizers may reduce overall giving.

Current federal income tax rates were made permanent: 10%, 12%, 22%, 24%, 35%, and 37%.

Increase in tax rates for university endowments

The tax on investment earnings of private college and university endowments, currently set at 1.4%, will increase under a new tiered structure:

• $500,000-$750,000 per student: 1.4%
• $750,000-$2 million per student: 4%
• Over $2 million per student: 8%

Public colleges and universities are not subject to the endowment tax.

Impact: This could result in significant new tax liabilities for large private colleges and universities.  The number of affected institutions is expected to grow beyond the current 56 private colleges and universities. Higher education institutions impacted by this provision may want to reinforce the importance of planned giving and unrestricted giving.

Corporations are now required to give more to keep their deductions

The OBBB requires corporations to donate at least 1% of their taxable income to qualified charities to be eligible for charitable deductions for taxable years after December 31, 2025.

Impact: This provision may prompt increased corporate philanthropy and open new partnership opportunities. This new threshold could encourage strategic alliances between corporations and nonprofits.

Conclusion

Be sure to educate donors to avoid confusion or misunderstanding of the new law, and always encourage donors to consult their tax advisor prior to making a charitable contribution.