President Donald Trump signed the One Big Beautiful Bill Act into law on July 4. Among its many provisions, this widely publicized bill impacted charitable donations and how they can be deducted. These changes have not come into effect yet but will be starting in 2026. As these changes impact all taxpayers, regardless of whether they take a standard deduction or itemize, it is important to look at the ramifications and what they mean for potential donors, especially with the end of the year quickly approaching.
While the OBBBA affects all taxpayers as it relates to their charitable donations, its impact is widely disparate as it affects individuals who take the standard deduction and those who itemize their deductions. As such, anyone who is contemplating making a charitable donation should consider whether that gift would be better served if given in 2025 or whether that individual should wait until 2026, from a tax perspective. At the end of this article, I will give a general takeaway on how the OBBBA will impact charitable donations.
The OBBBA’s impact on those who take standard deductions is straightforward. First, the OBBBA increased the standard deduction for all single filers by $1,000 and for married couples filing jointly by $2,000. This brings up the total non-itemized deductions to $15,750 for single filers and $31,500 for married couples filing jointly. This is further indexed for inflation, meaning the standard deduction may go up in the future.
The OBBBA also reinstated a deduction for cash donations for individuals who do not itemize. This deduction, $1,000 for individuals and $2,000 for married couples filing jointly, is in addition to the standard deductions. There had been a similar provision through the Coronavirus Aid, Relief, and Economic Security Act, although that deduction was for up to $3,000 of charitable donations. It is also important to note that these deductions are for cash donations only; donor-advised funds are ineligible for this deduction.
Because this deduction does not start until 2026, individuals who take standard donations will not be able to benefit from the OBBBA deductions in 2025. Anyone who takes the standard deduction and is considering making a charitable donation would be better served, from a tax standpoint, to wait until 2026 and beyond to make that donation. This will impact a larger number of Americans, as most Americans take the standard donation. However, the $1,000 limit for individuals and $2,000 for married couples filing jointly is a hard cap, which means any additional charitable donations beyond that amount would not have any tax ramifications.
On the other hand, the OBBBA reduces the tax benefits for people who take itemized deductions as it pertains to their charitable donations in two main ways. First, itemized filers are limited to deducting charitable donations to 35% of their adjusted gross income. This cap applies even to filers who are in the 37% tax bracket (approximately $626,350 for single filers or $751,600 for married couples filing jointly). Furthermore, the OBBBA creates a floor of 0.5% of an itemized filer’s AGI. This means that the only donations that are deductible are those in excess of the floor. In simple terms, an individual with an AGI of $250,000 can only deduct charitable donations more than $1,250.
In short, taxpayers who itemize their deductions will see a reduced impact on their tax returns. Consequently, individuals who typically itemize their deductions would be better served to donating a larger amount in 2025, before the OBBBA takes effect, to maximize their deductions as it relates to their charitable donations.
Practically, the impact of the OBBBA is positive for most Americans, as approximately 90% of tax filers take the standard deduction. It remains to be seen whether the average American will take advantage of this potential deduction – whether because they are not making any charitable donations or through ignorance of this new provision in the OBBBA. However, this is a significant reduction for the ~10% of Americans who do take the itemized deductions – individuals who may be more likely to donate. The OBBBA seems to want to encourage more, smaller donations from the average earning American at the cost of larger donations from some higher net-worth individuals.
The OBBBA will undoubtedly impact the lives of many Americans. It is important to identify how it will influence you personally before it takes effect in 2026, as those considerations may guide your philanthropic decisions. Please note that this article does not purport to give legal advice. If you have any questions regarding how the One Big Beautiful Bill Act will apply to your unique financial situation, please contact your lawyer or tax professional.
This article originally appeared as a column for the Cleveland Jewish News.