Additional Restrictions on Charitable Deductions Take Effect in 2026
- December 3, 2025
- News
As we approach the end of 2025, taxpayers should keep in mind that, due to recent changes in law, deductions for charitable contributions made in 2026 will generally be less valuable than deductions for charitable contributions made in 2025.
The One Big Beautiful Bill Act, which was signed into law on July 4, 2025, made two changes to the tax law that reduce the value of an individual’s federal charitable deductions, both of which take effect beginning with the 2026 tax year. First, deductions for charitable contributions will generally only be allowed to the extent that they exceed 0.5% of a taxpayer’s adjusted gross income. Second, all itemized deductions (including deductions for charitable contributions) will be reduced by 2/37 (i.e., 5.41%) of the amount of such itemized deductions (or, if lower, the amount of the taxpayer’s taxable income that would otherwise be taxable at the highest 37% marginal tax bracket).
As an example, assume a taxpayer has $1,000,000 of ordinary income in 2026 and that the taxpayer made $50,000 of cash charitable contributions in 2026 and has no other itemized deductions. Under the first limitation, the taxpayer’s charitable deductions are limited to $45,000 (i.e., the excess of the $50,000 of donations over 0.5% of the taxpayer’s adjusted gross income). Under the second limitation, the taxpayer’s itemized deductions are further limited to $42,568 (i.e., $45,000 x 35/37). If, instead, the taxpayer had the same income and made the same donations in 2025, the full $50,000 of charitable deductions would generally be allowed.
In light of the above, taxpayers may want to consider accelerating charitable contributions to 2025, including potentially through the use of donor-advised funds. Of course, taxpayers must take into account, among other considerations, the tax law’s limitations on the ability to deduct charitable contributions based upon the taxpayer’s adjusted gross income.
If you have any questions, please contact any of our attorneys.
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