What All Donors Need To Know About Tax Deductions After The OBBBA

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How recent Federal tax law changes are reshaping charitable giving strategies—and what you should do before year-end

When President Trump signed the One Big, Beautiful Bill Act (OBBBA) into law on July 4, 2025, most headlines focused on the sweeping economic provisions. But buried in the legislation were significant changes to charitable giving rules that will affect millions of Americans who donate to charity—changes that could mean thousands of dollars in lost deductions if you're not prepared.

If you've been using the same charitable giving strategy for years, it's time for a refresh. Here's what every donor needs to know about the new rules and how to maximize your charitable impact while minimizing your tax bill.

Three Major Changes That Affect Your Charitable Deductions

1. The New AGI Floor: Not All Donations Count Anymore

Perhaps the most consequential change for everyday donors is the introduction of a 0.5% adjusted gross income (AGI) floor for itemized charitable deductions. What does this mean in plain English? If your AGI is $200,000, the first $1,000 you donate to charity won't generate any tax benefit—only donations above that threshold will reduce your tax bill.

This seemingly small change has enormous implications. For donors who previously made modest charitable contributions throughout the year, the tax benefit of those gifts just got significantly smaller.

2. A Silver Lining for Non-Itemizers (With Strings Attached)

The OBBBA does offer one piece of good news: a new above-the-line deduction of up to $2,000 for taxpayers who don't itemize. This means you can claim up to $2,000 in charitable deductions even if you take the standard deduction.

But there's a catch—actually, three catches. The deduction is capped at $2,000, and it explicitly excludes donations to:

• Donor-advised funds (DAFs)

• Private foundations

• Supporting organizations

This exclusion is particularly significant for sophisticated donors who have relied on these vehicles for tax planning.

3. The 60% AGI Limit Is Now Permanent

On a more positive note, the OBBBA made permanent the 60% AGI limitation for cash contributions to public charities. This provides planning certainty for high-net-worth donors making substantial charitable gifts.

Why "Bunching" Strategies Just Became Essential

The new 0.5% AGI floor fundamentally changes the calculus around charitable giving timing. Under the old rules, spreading out donations evenly across multiple years was often perfectly fine. Now, that approach may leave money on the table.

Enter "bunching"—the strategy of concentrating multiple years' worth of charitable contributions into a single tax year to clear the AGI floor and maximize your itemized deductions. In alternate years, you take the standard deduction.

Example: Instead of donating $8,000 per year for two years, you donate $16,000 in year one and nothing in year two. In year one, you itemize and benefit from clearing the AGI floor. In year two, you take the standard deduction.

Donor-Advised Funds: Still Valuable, But More Complicated

Despite apocalyptic predictions that the OBBBA would kill donor-advised funds, DAFs remain alive and well—though the rules have gotten more nuanced.

What didn't change: The OBBBA did not impose a mandatory payout requirement from DAFs. You can still contribute to a DAF, receive an immediate tax deduction (subject to AGI limits), and recommend grants from the fund over time.

What did change: DAF contributions are now subject to the new 0.5% AGI floor for itemizers, and they're excluded from the $2,000 above-the-line deduction for non-itemizers.

The OBBBA also maintained the existing excise tax regime: a 20% excise tax on improper distributions from DAFs (such as distributions to individuals or for non-charitable purposes), and a 5% excise tax on fund managers who knowingly approve such distributions.

Bottom line: DAFs remain powerful planning tools, especially for bunching strategies, but they work best for itemizers making donations large enough to clear the new AGI floor.

Qualified Charitable Distributions: A Powerful Alternative for Retirees

If you're over 70½ and have money in a traditional IRA, qualified charitable distributions (QCDs) offer a compelling alternative to traditional charitable giving—and they're largely unaffected by the OBBBA changes.

With a QCD, you can direct up to $100,000 per year from your IRA directly to charity. The distribution is excluded from your gross income entirely, meaning it never appears on your tax return as income in the first place.

Key advantages:

• No AGI floor applies (because it's an exclusion, not a deduction)

• Counts toward your required minimum distribution (RMD)

• Can benefit even non-itemizers

• Doesn't increase your AGI (which can help with Medicare premium calculations and other AGI-based thresholds)

Critical limitations:

• QCDs cannot be made to donor-advised funds

• Supporting organizations are also excluded

• The distribution must go directly from your IRA trustee to the charity

• You can't also claim a charitable deduction for the same amount

Action Steps: What Donors Should Do Now

1. Calculate your AGI floor. Take your expected 2026 AGI and multiply by 0.5%. That's the minimum you'll need to donate before any itemized charitable deduction kicks in.

2. Run the itemize-vs.-standard-deduction math. With the AGI floor in place, many taxpayers who previously itemized may now be better off taking the standard deduction and using the $2,000 above-the-line deduction (assuming they donate to eligible charities).

3. Consider a bunching strategy. If you're close to the itemization threshold, concentrating two or more years of donations into a single year may generate significantly more tax benefit. A donor-advised fund can serve as the "warehouse" for the bunched contribution, allowing you to spread actual grant recommendations over multiple years.

4. Explore QCDs if you're retirement age. If you're over 70½ with IRA assets, QCDs may now be more attractive than ever, since they avoid the AGI floor entirely and provide tax benefits even to non-itemizers.

5. Review your estate plan. The charitable giving landscape has shifted. If your estate plan includes charitable bequests or charitable remainder trusts, make sure your advisors review whether the OBBBA changes affect your long-term strategy.

The Bottom Line

The OBBBA's charitable giving changes won't make headlines, but they will make a real difference in your tax bill. The new AGI floor and above-the-line deduction create a more complex landscape where timing, recipient selection, and coordination with retirement account distributions matter more than ever.

The donors who will thrive under the new rules are those who take a proactive, strategic approach—working with qualified advisors to optimize when they give, how much they give, and which vehicles they use.

Need help navigating the new charitable giving rules? Don't let the OBBBA's complexity cost you thousands in lost deductions. Contact your tax advisor now to model different scenarios for your specific situation and develop a multi-year charitable giving strategy that maximizes both your impact and your tax benefits. With year-end approaching, there's no time to waste—the planning you do today, which could save you significantly when you file your 2026 return.