Among the tax provisions of the One Big Beautiful Bill Act (OBBBA), which was signed into law on July 4, 2025, are new limitations on charitable contribution deductions for individuals and corporations. For tax years starting after Dec. 31, 2025, the OBBBA creates new floors for charitable contribution deductions. In the case of individual taxpayers, charitable contributions are deductible only to the extent the aggregate contributions exceed 0.5% of the taxpayer’s “contribution base” (i.e., the taxpayer’s adjusted gross income computed without regard to any net operating loss carryback for the tax year) for the taxable year.
In the case of corporate taxpayers, charitable contributions are deductible only to the extent they exceed 1% of the corporation’s taxable income for the taxable year and do not exceed 10% of the corporation’s taxable income for the taxable year.
Limitations for Individual Taxpayers
Prior to the OBBBA, the Internal Revenue Code (Code) provided various limitations on charitable contribution deductions for individuals. The limitations were dependent on the nature of the contributions or the type of recipient (e.g., a public charity or a private foundation). For example, capital gain property contributions to public charities could not exceed 30% of the individual’s contribution base. Charitable contributions in excess of these limitations could be carried over for the succeeding five years.
These limitations generally remain under the OBBBA, with certain modifications (e.g., the 60% contribution base limitation applicable to cash contributions to public charities, which had been temporarily extended under the Tax Cuts and Jobs Act of 2017, has been made permanent). In addition, under the OBBBA, taxpayers in the top tax bracket have a maximum deduction benefit of 35% per dollar donated, a reduction from the prior maximum benefit of 37% per dollar donated.
Under new Code Section 170(b)(1)(l), as enacted by the OBBBA, charitable contribution deductions for itemizing taxpayers are allowed only to the extent the aggregate of the contributions for the year exceeds 0.5% of the taxpayer’s contribution base.1 This floor applies to all contributions, regardless of the nature of the contribution. The floor is applied to charitable contributions in the following order: (1) capital gain property contributions to private foundations, (2) capital gain property contributions to public charities, (3) other contributions to private foundations, (4) contributions of qualified conservation easements, (5) other contributions to public charities, and (6) cash contributions to public charities.
In years in which a taxpayer’s contributions exceed a charitable contribution deduction limitation,2 Code Section 170(d)(1)(C) permits contributions disallowed by the deduction limitation and the 0.5% floor to be carried over subject to complex carryforward rules. Carryover amounts from contributions made before Jan. 1, 2026, are not subject to the 0.5% floor when they are used in later years.
Limitations for Corporate Taxpayers
Prior to the OBBBA, Code Section 170(b)(1)(A) provided that a corporation could take a deduction for charitable contributions. However, charitable deductions were limited to 10% of the corporation’s taxable income before the charitable deduction and certain other deductions were considered. Charitable contributions in excess of the 10% limitation could be carried over for the succeeding five taxable years. Charitable contribution carryovers were considered in the order in which they arose.
The OBBBA amended Section 170(b)(2)(A) to permit deductions for corporate charitable contributions “only to the extent that the aggregate of such contributions exceeds 1% of the taxpayer’s taxable income for the taxable year, and (ii) does not exceed 10% of the taxpayer’s taxable income for the taxable year.” The amendment creates a 1% floor on deductions for corporate charitable contributions.3
If charitable contributions do not exceed the 10% limit, no carryovers of charitable contributions are permitted. If the charitable contributions for the year exceed the 10% limit, then the corporation may carry over both the amount in excess of the 10% limitation and the 1% that was disallowed. Carryovers of excess charitable contributions from a tax year beginning after 2026 will be subject to the 1% floor in the same manner as contributions made in the subsequent year.
Taxpayer Considerations
Depending on an individual or corporate taxpayer’s income for the year, the new floor on charitable contribution deductions may result in a loss of tax benefits. Taxpayers should consider some strategies that may reduce the impact of the loss of deductions.
- Bunching charitable contributions: Aggregating multiple years of planned charitable contributions into a single year and making no contributions for a number of subsequent years might reduce the adverse consequences to the extent that the applicable limitations are not exceeded. This strategy may help taxpayers whose annual charitable contributions no longer meet the charitable contribution deduction threshold under OBBBA or taxpayers that want to limit the total amount of disallowed charitable contributions over the course of multiple years.
If a taxpayer wants to bunch charitable contributions for purposes of reducing the loss of deductions but still defer contributions to particular charities to succeeding years, a contribution to a donor advised fund may provide a solution. Through the ability to advise on the grants from the donor advised fund, the taxpayer would make a bunched charitable contribution to the donor advised fund and then spread out contributions to particular charities over the course of several years.
- “Ordinary and Necessary” business expenses: Contributions to charities from business entities may constitute “ordinary and necessary” business expenses deductible by taxpayers under Code Section 162. Code Section 162 can apply regardless of whether the business entity is a sole proprietorship, partnership, or corporation. Generally, a taxpayer does not have a choice to determine the nature of the expense. The facts and circumstances surrounding the contribution will dictate whether the contribution to a charity is a charitable contribution or a business expense. If a business makes a contribution to a charity with no intent or expectation of receiving a financial benefit from the contribution, a Section 162 deduction would not be allowed. However, if the business entity expects a financial benefit from the contribution, a Section 162 deduction would be appropriate. In particular, the IRS has recognized promotional value arising from a payment to a charity as a basis for a business expense rather than a charitable contribution deduction.
However, a disadvantage of deducting the contribution of property as a business expense under Code Section 162 is that the business entity would not avoid the recognition of gain, if any, on the property contributed. In contrast, a business that contributes property as a charitable contribution would not have to recognize gain, if any, on the property.
1 Under the OBBBA, for tax years after Dec. 31, 2025, taxpayers who do not itemize deductions may deduct up to $1,000 for single filers ($2,000 for joint filers).
2 An individual’s charitable deduction limitation is determined without regard to the 0.5% charitable floor.
3 It is unclear if the provision is intended to effectively limit the charitable contribution deduction to effectively 9% of the taxpayer’s taxable income or if the taxpayer can deduct 10% of the taxpayer’s taxable income in a taxpayer’s annual charitable contributions total at least 11% of taxable income.