How does the new AGI reduction for charitable contributions impact giving?

by Garrett Murphy, CPA

A major tax change is coming for anyone who donates to charity: starting in 2026, the One Big Beautiful Bill Act (OBBBA) will slightly limit how much of your annual charitable giving you can deduct on your tax return.

The good news: your generosity will still make a difference—and it can still help reduce your taxes. But you’ll want to understand how a new “floor” based on your adjusted gross income (AGI) could affect your deduction.

What’s changing?

Right now, if you itemize deductions, you can generally deduct all your charitable contributions (within certain AGI limits). Starting with tax years after December 31, 2025, that won’t be the case.

Under the OBBBA, you’ll only be able to deduct the portion of your charitable gifts that exceeds 0.5% of your AGI.

Example: If your AGI is $200,000, the first $1,000 of your charitable donations won’t count toward your itemized deductions. Anything you give beyond that will remain deductible, up to the existing AGI limits for charitable contributions.

How does the new 0.5% AGI “floor” work for charitable contributions?

Think of the 0.5% rule as a threshold you must clear before deductions kick in.

A few quick facts:

• It applies to all charitable gifts, regardless of the type of donation or nonprofit recipient.
• The floor is calculated after applying the usual AGI-based limits (such as the 60% limit for cash gifts to public charities).
• If your giving exceeds the allowable deduction limit for the year, you can still carry forward the excess for up to five years—but the portion disallowed by this new 0.5% floor generally can’t be carried forward unless you already have a carryover from the current year.

Example: With an AGI of $100,000 and $10,000 in charitable donations, the first $500 won’t be deductible. You’d still be able to deduct the remaining $9,500, as long as you stay within your annual AGI percentage limit.

What are some other key details?

• The 60% AGI limit for cash gifts to public charities is now permanent, but the 0.5% floor applies first.
• The change does not affect the above-the-line charitable deduction for taxpayers who don’t itemize — which increases to $1,000 for single filers and $2,000 for joint filers starting in 2026.
• Corporations will also see a similar adjustment: a 1% floor based on taxable income.

How can I make the most of my charitable giving under the new rules?

• Consider timing and bunching: Combining multiple years of gifts into one tax year could help you exceed both the standard deduction and the 0.5% floor.
• Match giving to income: Large charitable gifts can be especially beneficial in higher-income years.
• Review your strategy now: If you have charitable carryforwards or are planning significant donations, it’s worth reviewing your plan with your tax advisor before these changes take effect.
• Non-itemizers still benefit: Even if you take the standard deduction, the expanded above-the-line charitable deduction can still reward your generosity. (This deduction excludes donor-advised fund (DAF) contributions).

Bottom line

Beginning in 2026, only the portion of your charitable donations above 0.5% of your AGI will reduce your taxable income if you itemize. While that’s a relatively small shift, it could influence when — and how — you make your charitable gifts.

The Boyer & Ritter team is ready to help you continue to give generously while also making the most of available tax benefits. If you’d like to review your charitable giving strategy or discuss how this change may affect your 2026 return, please call us so we can develop a strategy that aligns with your philanthropic and tax goals.

About the Author

Garrett Murphy, CPA, is a Tax Manager at Boyer & Ritter and provides tax compliance and advisory services to businesses and individuals. Reach Garrett at 717-761-7210 or gmurphy@cpabr.com.