By: Samuel Craig, Esq. (Johnson Pope Bokor Ruppel & Burns, LLP) and Philip Nodhturft, III, J.D., LL.M. (Board of Directors)
Charitable giving has long been a smart way to pair financial strategy with social impact. As 2025 draws to a close, charitable organizations across the country are preparing for an important moment – a change in the federal tax laws. When the One Big Beautiful Bill Act (OBBBA) takes effect on January 1, 2026, the tax laws regarding charitable contributions will change significantly.[1] Whether you’re a longtime supporter or thinking about making a gift for the first time, here’s what you need to know.
Under current law, donors who itemize deductions can deduct charitable contributions of up to 60% of their adjusted gross income (AGI) when giving cash to qualified public charities. The OBBBA made this 60% of AGI limitation permanent. This means that a taxpayer may not deduct any amount of a charitable contribution in excess of 60% of his or her AGI. For example, if an individual whose AGI equals $100,000 in the current tax year wishes to make a cash contribution to a public charity, he or she may not deduct any amount of such contribution that exceeds $60,000. That said, charitable contributions that are not deductible in the current year (because they exceed the AGI limitation) can be carried forward for up to five years. This carryover becomes important because taxpayers with carryover deductions from two or more prior years must use the carryover from the earlier year(s) first. When determining the maximum amount a taxpayer may contribute (and receive a corresponding tax benefit for), these carryovers become particularly relevant.
For high earners in higher tax brackets, these deductions can substantially reduce taxable income, translating to meaningful savings while supporting impactful causes. However, two new provisions of OBBBA may substantially affect the tax benefit of a taxpayer’s donation, especially for those donors in the highest 37% income tax bracket.
First, a new 0.5% modified AGI (MAGI) floor will apply. This means that the first 0.5% of a taxpayer’s MAGI, regardless of income level, that is given to charity will not be deductible at all. The only exception is that taxpayers who do not itemize their deductions may deduct up to $1,000 of charitable contributions for single filers or $2,000 the donors are married and file a joint return. This exception becomes effective for the 2026 tax year.
Second, a portion of all of the taxpayer’s itemized deductions (e.g., charitable contributions, state and local taxes, mortgage interest, etc.) will now be subject to potential disallowance. The amount of disallowance is equal to 2/37 multiplied by the lesser of: (i) the total amount of itemized deductions for that year, or (ii) the amount of income being taxed at the highest marginal rate (i.e., the portion of the taxpayer’s income that falls in the 37% bracket).[2] For simplicity, this article refers to this disallowance as the “35% ceiling.” This limitation applies after the other limitations on the allowance of any itemized deduction(s), including the 0.5% MAGI floor.[3]
Here’s an example of how these law changes can impact wealthy individuals who wish to make large charitable contributions: Assume that Joanne has $700,000 of MAGI and wishes to make a $150,000 gift to a public charity (and, for simplicity, this example assumes that this charitable donation will be her only itemized deduction, even though in reality it is likely other itemized deductions, such as real estate taxes and mortgage interest, would have to be considered). Due to Joanne’s income, she is in the top marginal tax bracket of 37%.
In 2025, she will be able to deduct the entire $150,000 charitable contribution because it does not exceed 60% of her AGI. There is also no deduction floor or ceiling that would otherwise limit this deduction.
However, in 2026, the OBBBA rules will limit this deduction. First, the $150,000 contribution will be reduced by the 0.5% MAGI floor ($700,000 MAGI × 0.5% = $3,500), thereby reducing the deductible amount of the contribution from $150,000 down to $146,500. Then, the new “35% ceiling” will also apply by multiplying 2/37 by the lesser of: (i) $146,500 (which is the amount equal to her net amount of itemized deductions), or (ii) $73,650 (which, in this example, is the amount of Joanne’s income that falls within the 37% marginal tax bracket).
Here, $73,650 is the lower number, so $3,981 (2/37 × $73,650) of itemized deductions will be further disallowed.
The end result winds up being that the deductible amount of Joanne’s $150,000 charitable contribution in 2026 will be only $142,519, which is a reduction of $7,481 (as compared to current law). Accordingly, Joanne would be effectively incentivized to accelerate this charitable contribution to 2025 versus making the same gift under the new laws set to take effect in 2026.
In addition to cash donations, donors often times make donations of appreciated property. Donations of appreciated assets help avoid capital gains tax on the built-in appreciation of the asset, as the charity is not required to pay capital gains tax when it sells the asset that was donated. When it comes to donating appreciated assets, similar rules (and limitations) will now apply in 2026.
Currently, when an individual donates long-term appreciated assets (e.g., stocks held for more than one year) to a charity, the deductible amount to the taxpayer is the fair market value of that asset on the date of the gift, rather than the donor’s tax basis in the asset (i.e., the initial purchase price). However, starting in 2026, the 0.5% MAGI floor and 35% ceiling will apply, once again reducing the overall tax savings associated with such a gift.
For donors who are planning significant gifts or who routinely give at higher levels, 2025 represents the last opportunity to maximize charitable tax benefits under the current tax law system. Beginning in 2026, many donors will find their deductions more limited, especially if they fall into a higher income bracket. Therefore, taxpayers are incentivized to accelerate their charitable contributions to 2025 and maximize the tax benefit of their charitable efforts.
At its core, charitable giving is about supporting causes you care about and making an impact in your community and beyond. But when the corresponding tax benefits align with generosity, it creates a powerful opportunity to amplify that impact. We encourage all our friends and supporters to talk with their financial advisors about how the upcoming changes may affect their giving strategy — and to consider making a year-end gift in 2025 to take full advantage of the current, more generous rules.
To learn more about how you can support the Humane Society of Tampa Bay, or to make a charitable donation, please visit www.humanesocietytampabay.org or contact Ornella Varchi, the Chief Advancement Officer, at OrnellaV@HumaneSocietyTampa.org or (813) 876-4150. In addition, if you have further questions regarding the tax implications of charitable giving or related legal considerations, feel free to contact the primary author of this news alert, Samuel Craig, directly by e-mail at scraig@jpfirm.com or by phone at (727) 999-9900.
[1] It should be noted that the computation for the charitable deduction is one of the most complex areas of the tax code, so the following example(s) are merely illustrative of the OBBBA changes and are not meant to be used as actual tax advice.
[2] See I.R.C. § 68(a), as revised by Pub. L. 119-21, Sec. 70111(a).
[3] See I.R.C. § 68(b).
