OBBBA Affects Charitable Giving and Estate Planning

The OBBBA includes several provisions that affect how individuals can deduct charitable contributions on their federal income tax returns. These changes influence both annual tax filings and estate planning decisions. 

Perhaps the most significant update is that the OBBBA makes permanent or modifies key provisions of the Tax Cuts and Jobs Act of 2017. As a result, taxpayers can plan strategically for their charitable giving, leveraging a clearer understanding of the federal tax implications.

It is important to note that these changes only apply to federal gift and estate tax laws. State-level taxes are not affected, so taxpayers living in states with their own gift and estate tax rules should reassess their charitable giving strategy accordingly.

Charitable deduction limits and changes

The OBBBA permanently codifies the cash donation limit at 60% of adjusted gross income. Contributions of appreciated assets are limited to 30% of adjusted gross income. These contributions are also subject to a 0.5% floor on charitable deductions, which will take effect in 2026.

Several additional changes will begin in 2026. Non-itemizers will be eligible to claim a charitable deduction, with limits of $1,000 for single filers and $2,000 for married couples filing jointly. Itemized deductions for individuals in the top 37% tax bracket will be capped at 35%.

The new 0.5% floor on charitable deductions means that taxpayers who itemize will only be able to deduct contributions that exceed 0.5% of their adjusted gross income. In general, any amount not allowed as a deduction will be permanently lost unless the taxpayer has carryforwards. 

The OBBBA also specifies an order for how contributions must be reduced, which could affect planning for itemizers. Taxpayers who exceed the deduction limits can still utilize carryforward provisions. 

Generally, carryforwards are allowed for up to five years. Because of these upcoming rules, some taxpayers may benefit from consulting a tax professional to determine whether claiming deductions in 2025 is more advantageous.

Impact on charitable organizations

The tax changes under the OBBBA primarily affect wealthy private colleges and universities, as well as organizations with highly compensated employees. 

For example, the endowment excise tax on private colleges and universities with income-producing noncharitable assets exceeding $750,000 per student has been increased. 

The rate can reach up to 8%, depending on the asset amount. To be subject to this tax, the institution must have at least 3,000 tuition-paying students.

Starting in 2026, exempt organizations with employees earning more than $1 million will face a higher excise tax liability. Previously, only the five highest-paid employees were included, but the OBBBA requires all employees in this salary range to be counted.

Gift and estate tax exemptions

The OBBBA makes permanent the gift and lifetime exemptions introduced under the Tax Cuts and Jobs Act. These exemptions are currently $13.99 million for single filers and $27.98 million for married couples filing jointly. 

Beginning in 2026, the exemptions will increase to $15 million per individual and $30 million for married couples. These amounts will also be adjusted annually for inflation.

This change is particularly important for high-net-worth families as they create or review their estate plans. The increased exemptions may allow families to make larger tax-free gifts or reduce their estate tax liability in future years.

Planning strategies for charitable deductions

Combining multiple years of charitable contributions into a single tax year may be beneficial for donors who do not have enough contributions to itemize each year. Careful planning for charitable deductions has become increasingly important. 

In certain situations, establishing a nongrantor trust, which pays its own taxes, may provide favorable tax outcomes. Strategically timing charitable donations can maximize the tax benefits under the OBBBA.

Because the legislation is complex, taxpayers who are considering charitable contributions should consult with our tax team. This ensures that they are taking full advantage of the opportunities and benefits provided by the new law.