Cameron Miranda
The One Big Beautiful Bill Act (OBBB), signed into law by President Trump on July 4, 2025, introduces new provisions that will significantly impact charitable giving. The OBBB reshapes policy across major sectors of the US economy, including philanthropy, and is expected to have a chilling effect on charitable donations, similar to the Tax Cuts and Jobs Act (TCJA) of 2017, which led to a $20 billion drop in charitable giving. The new law introduces a 0.5% AGI floor, requiring itemizers to contribute at least 0.5% of their adjusted gross income (AGI) before claiming charitable deductions. It also expands the bonus deduction for taxpayers 65 and older through 2028 and introduces a tiered endowment tax on university endowment investment earnings. Charities are now looking to attract new donors and engage existing ones in different ways to encourage continued support.
| Characteristics | Values |
|---|---|
| Permanent universal charitable deduction | Creates tax incentives for the vast majority of Americans who don't itemize their taxes |
| Above-the-line charitable deductions for non-itemizers | Non-itemizers can deduct cash donations to charity up to $1,000 for individuals and $2,000 for joint filers starting in 2026 |
| Adjusted gross income limits | Extends the ability to deduct up to 60% of AGI for cash contributions to 501(c)(3) public charities |
| Estate and gift tax exemption | Increased to $15 million for the 2026 tax year, with future adjustments for inflation |
| State and local tax (SALT) deduction | Increased from $10,000 to $40,000 for the 2025 tax year, with annual increases of 1% through 2029, reverting to $10,000 in 2030 |
| Higher tax rates on university endowments | Introduces a tiered endowment tax on university endowment investment earnings, ranging from 1.4% to 8% |
| Temporary deduction for vehicle loan interest | Included in the tax-and-spending cuts package with restrictions |
| Tax deductions for taxpayers 65 and older | Expanded through 2028 |
| Tax deductions for itemizers | Limited to the extent that charitable deductions exceed 0.5% of adjusted gross income |
| Tax deductions for taxpayers in the top bracket | Limited to a 35% tax deduction for charitable gifts instead of 37% |
| Tax deductions for corporations | Requires corporations to contribute at least 1% of their taxable income to qualify for a charitable tax deduction |
| Tax deductions for cash gifts to scholarship-granting organizations | Allows a nonrefundable tax credit of up to $1,700 for contributions to section 501(c)(3) public charities granting scholarships to students |
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What You'll Learn
Tax incentives for non-itemizers
The latest tax law introduces new provisions that will shape charitable giving. The One Big Beautiful Bill Act (OBBB), signed into law on July 4, 2025, reshapes charitable giving incentives across donor segments.
Starting in 2026, a reinstated deduction will allow non-itemizers to deduct cash donations to charities of up to $1,000 for individuals and $2,000 for joint filers. This is known as the universal charitable deduction and creates tax incentives for the majority of Americans who don't itemize their taxes. This provision acknowledges philanthropy's broad importance and may help reverse the trend of fewer Americans donating.
The new law also permanently extends the ability to deduct up to 60% of Adjusted Gross Income (AGI) for cash contributions to public charities. Additionally, there is a new, temporary deduction for vehicle loan interest. However, it comes with several restrictions.
The OBBB introduces a tiered endowment tax on university endowment investment earnings, with rates ranging from 1.4% to 8%. Private colleges with fewer than 3,000 tuition-paying students are exempt from this tax.
The impact of these changes on charitable giving behaviour is yet to be seen. Some possibilities include "bunched giving," where donors put multiple years' worth of charitable giving into a single year to gain tax benefits. This may also increase the appeal of Donor-Advised Funds (DAFs) as they provide donors with more flexibility to make decisions about the causes they support annually.
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Taxpayers 65+ get a bonus deduction
The One Big Beautiful Bill (OBBB) Act, signed into law on July 4, 2025, introduced a $6,000 bonus deduction for taxpayers aged 65 and above. This deduction is available to individuals with an income of up to $75,000 and couples with a combined income of up to $150,000. The value of the deduction decreases for those with incomes above these thresholds. This bonus deduction is available to taxpayers who itemize and those who do not.
The new tax law is expected to benefit older Americans, especially those who own homes and live in states with high property taxes and values. The OBBB also increases the state and local tax (SALT) deduction cap to $40,000 for taxpayers with a modified adjusted gross income below $500,000 in 2025. This cap will increase by 1% annually until 2030 when it reverts to $10,000.
The bonus deduction for taxpayers 65+ is in addition to the standard deduction and the extra standard deduction for older adults. For example, a 65+ married couple with a combined income of $120,000 can claim the standard deduction of $31,500, the age-related addition of $3,200, and the new bonus of $6,000 each, reducing their taxable income by $46,700.
The OBBB also introduces other tax changes, such as a new tiered endowment tax on university endowment investment earnings and a temporary deduction for vehicle loan interest. The law preserves key elements of the 2017 Tax Cuts and Jobs Act (TCJA) while introducing new provisions that may shape charitable giving.
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Tax on university endowments
Universities and their endowments have historically been exempt from federal income tax under section 501(c)(3) of the Code. However, in 2017, the Tax Cuts and Jobs Act introduced a 1.4% excise tax on the endowments of private universities with specific characteristics: at least 500 fee-paying students, over 50% of whom are US-based, and assets with a fair market value of $500,000 or more per student. This "endowment tax" applies to the net investment income of the university endowment, which includes interest, dividends, rents, royalties, and gains from asset sales, less certain deductions.
In 2025, Representative Mike Lawler proposed the Endowment Accountability Act, which would increase the endowment tax rate from 1.4% to 10% and lower the per-student endowment threshold from $500,000 to $200,000. This proposal would significantly expand the number of private universities subject to the tax. Additionally, a House panel advanced a bill to raise the endowment tax to 21% for private universities with $2 million in endowment funds per student. This bill would introduce a four-tiered system for endowment taxes, with rates starting at 1.4% and increasing to 7%, 14%, and 21% for the wealthiest institutions.
The endowment tax is controversial, with bipartisan efforts in Congress to repeal it. Critics argue that it will negatively impact financial aid, research, faculty hiring, and other activities supported by endowments. However, some members of Congress question whether wealthy institutions are using their resources effectively to further society's educational goals, particularly regarding the enrollment of low-income students.
The impact of the endowment tax on universities and their ability to support various activities will depend on the final legislation and its implementation. Universities with large endowments may need to reevaluate their spending and pricing structures in light of these tax changes.
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Itemizers' charitable deductions limited
The One Big Beautiful Bill Act (OBBB), signed into law on July 4, 2025, reshapes charitable giving incentives across donor segments. The new tax law limits how much itemizers may deduct in a given year and expands the amount non-itemizers can claim.
The OBBB introduces a new floor on deductions for itemizers and corporations. Effective in the 2026 tax year, itemizers who make charitable contributions will only be able to claim a tax deduction to the extent that their qualified contributions exceed 0.5% of their adjusted gross income (AGI). For example, a couple with an AGI of $300,000 could only deduct charitable donations in excess of $1,500. This new rule may substantially impact philanthropic giving.
The OBBB also establishes a new temporary charitable contribution deduction of up to $300 for non-itemizers, similar to the CARES Act provision that expired in 2021. It offers a new non-refundable 100% tax credit until 2029 on gifts up to the lesser of $5,000 or 10% of adjusted gross income, but only for gifts made to organizations that primarily provide scholarships to private or religious elementary and secondary schools.
The OBBB raises the $10,000 SALT cap to $40,000, but only for those with less than $500,000 in modified adjusted gross income (AGI). This increased deduction phases out for taxpayers with incomes over $500,000. The OBBB also permanently increases the standard deduction by $1,000 for single filers and $2,000 for married couples filing jointly through 2028. Such changes could reduce the number of taxpayers who itemize at all, narrowing the group that could benefit from the charitable deduction.
The new legislation caps the tax benefits of itemized charitable deductions at 35%, even for those in the 37% marginal tax bracket. This lower top rate and the limit on itemized deductions reduce the charitable deduction's value by $46 per $1,000, or a 4.6 percentage point decrease. This sizable decline would affect those in the top tax bracket—taxpayers who make the most contributions.
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Tax cuts and spending package
The One Big Beautiful Bill Act (OBBB), signed into law by President Trump on July 4, 2025, introduces new tax provisions that will significantly influence charitable giving strategies. The OBBB includes President Donald Trump's federal tax-and-spending cuts package, which affects filers claiming deductions for charitable contributions.
The new law makes permanent the standard deduction increases under the Tax Cuts and Jobs Act of 2017 (TCJA), increasing the standard deduction for 2025 to $15,750 ($31,500 for joint filers). It also expands the "bonus" deduction for taxpayers 65 and older through 2028. The OBBB introduces a new tiered endowment tax on university endowment investment earnings, with rates ranging from 1.4% to 8%. Private colleges with fewer than 3,000 tuition-paying students are exempt from the tax.
Starting in 2026, those who itemize their deductions will be allowed to deduct their cash contributions only to the extent that they exceed 0.5% of their adjusted gross income (AGI). This is a reduction from the previous 1% floor. This change also applies to non-cash contributions for those who itemize. For taxpayers who don't itemize, the OBBB creates a permanent deduction capped at $1,000 ($2,000 for joint filers) for charitable contributions starting in 2026. This provision does not include donations to donor-advised funds or private foundations.
The OBBB also makes permanent the TCJA's increased contribution limit of 60% of AGI for cash gifts to qualified charities for taxpayers who itemize. This limit is typically 30% for cash gifts to donor-advised funds and private foundations. Additionally, taxpayers in the top bracket can only claim a 35% tax deduction for charitable gifts, a reduction from the previous 37%. These changes could have a substantial impact on philanthropic giving, particularly for nonprofits that rely on donations.
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Frequently asked questions
The OBBB is a new law that will reshape charitable giving and tax incentives for donors. It was signed into law by President Trump on July 4, 2025.
The OBBB introduces a 0.5% AGI floor, requiring itemizers to contribute at least 0.5% of their adjusted gross income (AGI) before claiming charitable deductions. It also expands the "bonus" deduction for taxpayers 65 and older through 2028.
Yes, any non-cash contributions made, such as clothes, food, or household goods, are now subject to the new 0.5% AGI floor. If you are taking the standard deduction, you cannot deduct your non-cash contributions.
The OBBB limits how much itemizers may deduct in a given year and expands the amount non-itemizers may claim. With the increased standard deduction, fewer taxpayers will be eligible for the charitable deduction for itemizers.
Yes, the OBBB introduces a new tiered endowment tax on university endowment investment earnings, with rates ranging from 1.4% to 8%. Private colleges with fewer than 3,000 tuition-paying students are exempt.
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