The recently passed One Big Beautiful Bill Act contains several changes to the Internal Revenue Code that relate to charitable giving and may affect a giver’s timing and strategy. In this report, giving strategists at the PCA Foundation explain the changes and some of the ramifications, and suggest possible responses.
60% Limit for Cash Contributions: The higher 60%-of-AGI (adjusted gross income) ceiling on deduction of cash contributions has been made permanent.
Commentary: The ceiling on deduction of contributions generally is 50% of AGI. The new text of the now-permanent 60% cash limitation appears to continue the total limitation for all contributions when contributions include both cash and capital-gain property to the greater of (i) 50% of AGI and (ii) the lesser of 60% of AGI and cash actually given. So, for example, if you deduct contributions of capital-gain property equal to 30% or more of AGI, you may deduct contributions of cash only to the extent of 20% of AGI, for a total deduction of 50% of AGI (not to the extent of 30% of AGI for a total deduction of 60% of AGI). Remember that the excess of gifts made in a year over these limitations may be carried forward for five years.
Some commentators believe the 60% cash limitation permits a total deduction of 60% of AGI for mixed giving of cash and capital gain property. We don’t see how – the text of the law seems pretty clear to us however silly we may think the 50% limitation is. But check with your own tax advisor. Seek help from your advisor also with the applications of ordering rules and the five-year carry-forward, which can be quite complicated.
Charitable Deduction for Non-Itemizers: Persons who do not itemize their deductions (those who take the standard deduction) may nevertheless deduct their cash charitable contributions, beginning in the 2026 tax year, but only up to $2,000 for joint filers and $1,000 for singles.
Commentary: This deduction may be taken only for contributions to end-user charities, not to donor-advised funds. Unfortunately, this benefit for those who give less comes with a cost for those who itemize because they give more. See next item.
½ Percent Floor on Itemized Charitable Deductions: Beginning in 2026, only the portion of charitable contributions that exceed a half percent of AGI are deductible as an itemized deduction.
Commentary: So, for example, a person with an AGI of $300,000 who gives $30,000 may deduct only $28,500 (30,000 – (300,000 x .005) = 28,500). But here’s an interesting twist that can greatly reduce the effect of this floor for high-level givers: givers whose gifts in a year exceed any AGI limitation (including the 60%, 50%, or 30% limitation) may add the ½ percent exclusion to the excess contribution amount being carried forward for deduction in the following year and the four years following that.
And of course to eliminate the effect of the ½ percent floor for 2026 (or even also 2027), givers may use their PCAF donor-advised funds to “bunch,” doing their giving for 2026 and perhaps 2027 into their PCAF DAFs in 2025 (before the ½ floor kicks in).
Maximum 35% Charitable-Deduction Tax Savings: Also beginning in 2026, the total of charitable-contribution and all other itemized deductions is reduced by 2/37 of the lesser of (i) total itemized deductions, and (ii) taxable income, computed without itemized deductions, in the 37% bracket.
Commentary: One more penalty on high-income high givers: in a revival of at least the concept underlying the so-called “Pease limitation,” the tax effect of itemized deductions for givers with taxable income in the highest – 37% – tax bracket is capped effectively at 35%. So, as a simple example (and using the 2025 tax brackets), a couple with taxable income after itemized deductions of $800,000 who give $200,000 will deduct $189,189 (200,000 – (200,000 x 2/37)) and realize tax savings – for greater giving – of $70,000 (200,000 x 35%). Without the limitation, they would deduct $200,000 and realize tax savings for greater giving of $74,000.
This cut to tax savings for charitable giving in 2026 and future years is another reason to do one’s charitable giving from extraordinary income earned and taxed in 2025 to one’s PCAF donor-advised fund in 2025, and not to wait to do that giving to end-user charities over future years. In addition, to preserve the 37 percent tax savings for greater giving for 2026, givers may use their PCAF DAFs to bunch, doing their giving for 2026 into their DAFs in 2025 (before the 2% haircut kicks in).
Increased Standard Deduction: The standard deduction increases for 2025 by $1,500 (to $31,500) for joint filers, and $750 (to $15,750) for singles.
Commentary: Increases in the standard deduction seem always to elicit from academics and large-charity leaders and associations handwringing and dire predictions of a decline in charitable giving. This decline will occur, they say, due to the higher standard deduction serving as a disincentive to charitable-contribution deductions. But these alarms show either “expert” misunderstanding of the economic effects of the charitable deduction, or a belief that most charitable givers misunderstand those effects. As those who have attended a PCAF Smart Giving Workshop know, charitable giving is never a net economic win for the giver, so no thinking person ever gives just in order to achieve an itemized tax deduction. The effect of the charitable deduction is, rather, simply to reduce tax and thereby free up more money for giving. And an increase in the standard deduction likewise reduces tax and thereby frees up more money for giving.
But attendees of Smart Giving Workshops also know a way to achieve the tax reduction for greater giving of both the increased standard deduction and the itemized charitable deduction. Called “bunching,” a giver may give to his donor-advised fund in one year the amount he intends to give to charity over two or even three years, and then give to end-user charities in the second and third years from the donor-advised fund. When he does so, he achieves the tax reduction of itemizing charitable deductions for the first, second, and third years, plus the tax reduction of the standard deduction for the second and third years – effectively, he achieves double deductions for the second and third years. The resulting tax reduction enables the giver to give more while keeping the same.
Increased Ceiling for Deduction of State and Local Taxes: The cap on the state-and-local-tax (SALT) deduction rises from $10,000 to $40,000 for 2025 through 2029, but it begins to phase out (but not below $10,000) for joint filers with modified AGIs over $500,000 ($250,000 for singles). Both the cap and the AGI limitations rise 1% each year to 2029.
Commentary: To the extent the increase in the standard deduction discourages unknowledgeable people from giving in order to receive an itemized charitable deduction, this increase in the SALT itemized deduction will restore the incentive to give, at least for wealthy givers in high-tax states.
Combined Estate and Gift Tax Exemption: The higher estate and gift tax exemption has been made permanent, and increases to $15,000,000 per spouse (effectively $30,000,000 total) for 2026 deaths.
Commentary: The high exemption obviates the need for estate-tax reduction strategies, including certain uses of the charitable lead trust, for many even very wealthy people.
However, givers who anticipate a large estate at death (even one that does not exceed the exemption amount), and a large charitable bequest, still are well-served to use their donor-advised funds to move up – or accelerate – their anticipated end-of-life charitable giving to years in which they still are earning or realizing high taxable income. Accelerating anticipated end-of-life gifts to current high-income years greatly reduces income tax. This is so because current gifts are deductible while there is no income tax deduction for charitable gifts made at death. This immediate tax reduction, accumulated earnings on the saved taxes, and tax-free earnings on the funds placed in the DAF combine to significantly increase (frequently by an astounding amount) how much the giver can give during life and at death.
Tax Credit for Cash Gifts to K-12 Scholarship Organizations: We end with some very good news (in our humble opinion): beginning in 2027, taxpayers who contribute cash to an organization that provides scholarships to students in K-12 schools may claim a credit of up to $1,700.
Commentary: This is a dollar-for-dollar credit against federal income taxes, not a deduction against federal taxable income. The contribution must be made to a tax-exempt scholarship granting organization in a state that has agreed to participate in the program. This federal credit must be reduced by the amount of any state credit allowed for the contribution. Scholarship awards are excluded from the federal taxable income of recipients.
Givers are encouraged to reach out to Tim Townsend, President of the PCA Foundation, ttownsend@pcanet.org or Sheldon Nordhues, Giving Strategist, snordhues@pcanet.org to discuss the OBBBA or their own strategic giving plans or opportunities.