By Lynn Evans
Our earlier overview of the One Big Beautiful Bill Act (OBBBA) touched briefly on its implications for charitable giving. For families and individuals who regularly give (whether to their church, a community foundation, or causes they have supported for years), a closer look is warranted.
The OBBBA is broadly favorable for high-income families: lower rates made permanent, a higher estate exemption, expanded QBI and QSBS rules. But two specific changes create real headwinds for the charitable deduction. Understanding both, and knowing how to plan around them, is now an essential part of any thoughtful giving strategy.
In our work as a multi-family office planning firm, we understand the implications of changing laws on wealthy families and their complex finances. Let’s explore the impact of OBBBA on charitable planning and what it may mean to your family’s legacy planning going forward.
The 0.5% AGI Floor: A New Minimum Before Deductions Begin
The most immediately practical change for strategic givers is the introduction of a floor on charitable deductions. Under OBBBA, individuals can only deduct charitable contributions to the extent they exceed 0.5% of adjusted gross income (AGI). For corporate taxpayers, the floor is 1% of taxable income.
The theory is straightforward, but the implications are real. A family with $2 million in AGI must give more than $10,000 before a single dollar of charitable deduction becomes available. The first $10,000 in contributions is simply eliminated for deduction purposes. For families in that income range who give $15,000 or $20,000 per year (i.e., a significant but not extraordinary level of generosity), only the amount above the floor produces a tax benefit.
For those giving smaller amounts relative to their income, the practical impact may be modest. But for families who give strategically and have historically structured their giving to maximize deductibility, timing and structure now matter quite a bit more. The floor creates an effective dead zone at the base of every giving year, and planning should account for it.
It is also worth noting that the floor operates alongside the existing ceilings. Under OBBBA, the rule still allows itemized deductions for cash gifts of up to 60% of AGI, gifts of appreciated assets up to 30% of AGI, as well as other AGI limitations, with a five-year carryforward for amounts above those limits. This rule is now permanent. The landscape for charitable deductions now has both a new floor and a longstanding ceiling, with planning opportunities in between.
The 35% Tax Benefit Ceiling: The Pease Limitation Returns
The second change affects taxpayers in the highest income tax bracket. Under OBBBA, individuals subject to the 37% marginal rate face a hard 35% ceiling on the tax benefit generated by their itemized deductions; not just charitable gifts, but mortgage interest, state and local taxes, and every other itemized deduction as well. Charitable deductions, as one component of itemized deductions, are subject to this tax-savings cap alongside the others.
The practical effect is straightforward. A top-bracket taxpayer who has historically assumed their charitable deductions are worth 37 cents on the dollar will find they are now worth exactly 35 cents per dollar. Rather than reducing the physical dollar amount of the deduction itself, the law effectively lowers the federal tax savings rate by exactly two percentage points.
Those familiar with tax history will recognize the structure. The original Pease limitation, introduced in 1990, could reduce itemized deductions by as much as 80%. OBBBA’s version is considerably cleaner—it establishes a flat 35% tax benefit cap rather than a complex phaseout—but the underlying principle is identical: Congress limiting the ultimate value of write-offs for top earners. And because the OBBBA made the 37% bracket permanent rather than allowing it to revert, this is not a temporary inconvenience; it is a durable feature of today’s tax climate.
For affluent families, the combination of the 0.5% floor and the 35% tax benefit ceiling means the net tax savings of charitable giving has declined modestly but decisively. That does not diminish the case for giving; it strengthens the case for giving in a smarter, more strategic manner.
Planning Opportunities: How to Adapt
Instead of eliminating the value of charitable giving, the new rules change how and when you should give. Several strategies are particularly well-suited to the post-OBBBA environment.
Donor-Advised Funds (DAFs) and Bunching
A DAF allows a donor to make a large contribution in a single tax year, take the full deduction in that year, and then distribute grants to charitable organizations over time. In the context of the new floor, bunching multiple years of giving into a single contribution can help clear the 0.5% threshold more decisively, maximize the deductibility of gifts above the standard deduction, and provide flexibility in how and when grants are made to specific causes.
Qualified Charitable Distributions (QCDs)
For clients age 70½ and older, QCDs allow direct transfers from an IRA to a qualified charity (up to $111,000 in 2026) without the distribution counting as taxable income. Because the gift never enters AGI, it bypasses the 0.5% floor entirely, and the 35% tax benefit ceiling is completely irrelevant. For the right client, the QCD may be the single most powerful charitable giving tool available under current law. OBBBA did not modify the rules for QCDs.
Charitable Remainder Trusts (CRTs)
CRTs are particularly effective for families holding highly appreciated assets. The donor transfers assets into the trust, receives an income stream for a term of years or lifetime, and a qualified charity receives the remainder. Capital gains on the appreciated assets are deferred, and the donor receives a partial charitable deduction—timed and structured to maximize the benefit above the 0.5% floor. For families with low-basis stock, real estate, or business interests, CRTs deserve serious consideration.
Charitable Lead Annuity Trusts (CLATs)
A CLAT makes annual payments to a charity for a defined period, with the remaining trust assets passing to heirs at the end of the term. With the estate tax exemption now at $15 million per individual under OBBBA, families with substantial wealth and potentially large estates may find that lifetime charitable structures like CLATs offer a compelling alternative to purely estate-driven planning, supporting current philanthropic goals while preserving wealth for the next generation.
Private Foundations
For families with significant and sustained giving intentions, a private foundation can receive a large contribution in a high-income year (generating a deduction in that year) while distributing grants to operating charities over time. Foundations also serve as a vehicle for multigenerational family philanthropy and can be structured to involve children and grandchildren in giving decisions.
Donating Appreciated Assets Directly
Contributing appreciated securities or other assets directly to a charity or DAF avoids capital gains tax entirely and generates a deduction for the full fair market value. In a post-OBBBA environment where every dollar of deduction is worth a bit less, avoiding capital gains on the way in becomes an even more important part of the overall picture.
The Broader OBBBA Context
The increase in the estate tax exemption to $15 million per individual (permanent and indexed for inflation, beginning in 2027) changes the planning calculus for many families with significant wealth. Some may find that concerns once addressed through estate planning can now be addressed through lifetime charitable structures instead, with better tax efficiency and more immediate philanthropic impact.
At the same time, the permanence of the 37% bracket and the 35% tax benefit ceiling means that top-bracket taxpayers should stop treating the deduction haircut as temporary: it is a fixture. Planning assumptions should be updated accordingly.
What to Do Now
The new rules reward proactive planning. Giving the same amounts in the same ways as before OBBBA could produce modestly worse tax outcomes. Giving thoughtfully—with attention to timing, vehicle selection, asset type, and coordination with your broader tax picture—can preserve and in some cases improve outcomes compared to what many families achieved before the law changed.
If you give consistently and have not yet revisited your charitable strategy in light of OBBBA, now is the time. Reach out to Solidarity Wealth to review how these changes align with your giving goals and overall financial plan. You can contact us at info@solidaritywealth.com or call 385-374-1665 to set up a conversation.
Frequently Asked Questions
What is the charitable deduction floor introduced by the OBBBA?
Under the OBBBA, individuals can only deduct charitable contributions that exceed 0.5% of their adjusted gross income (AGI). Contributions below that amount produce no deduction. For a family with $2 million in AGI, the first $10,000 in annual giving is effectively nondeductible. Corporate taxpayers face a higher floor of 1% of taxable income.
Although gifts disallowed under the familiar ceiling rules may be carried forward for five years, amounts disallowed by the 0.5% floor may only be carried forward if they increase an existing limitation. If the only limitation on a charitable gift is the 0.5% floor, then that limitation amount is lost. However, if an individual makes a cash gift above 60% of current year AGI, this will create a carryforward, and the 0.5% limitation on that gift will be added to that carryforward. The 0.5% floor will apply again in each of those future years.
The ceiling on deductibility — cash gifts up to 60% of AGI, with a five-year carryforward — remains in place and is now permanent.
Does the OBBBA change the rules for qualified charitable distributions (QCDs)?
No. The OBBBA left the QCD rules untouched. Donors age 70½ and older can still transfer up to $111,000 directly from an IRA to a qualified charity in 2026 without the amount counting as taxable income. Because the gift never enters AGI, the 0.5% floor is irrelevant, and so is the 2% reduction on itemized deductions. For the right donor, the QCD remains the most tax-efficient giving method available under current law.
What was the Pease limitation, and how does it apply under the OBBBA?
The Pease limitation was a rule that reduced the value of itemized deductions for higher-income taxpayers. The rule, introduced in 1990 and suspended in 2018, could reduce those deductions by up to 80%. The OBBBA permanently eliminated the original rule but revived the concept in a more restrained form: taxpayers in the 37% marginal bracket now face a 2% reduction applied across all itemized deductions, including charitable gifts, mortgage interest, and state and local taxes. The practical effect is that a top-bracket taxpayer who once expected 37 cents of benefit per dollar given will now receive something closer to 35 cents. Because the OBBBA made the 37% bracket permanent, this reduction is a durable feature of current tax law, not a temporary one.
Is bunching charitable gifts into a single year still a useful strategy after the OBBBA?
Yes, and the new floor makes it more relevant. Spreading modest annual gifts across multiple years risks leaving each year’s contributions below the 0.5% AGI threshold where no deduction applies at all. Concentrating several years of giving into a single large contribution clears that threshold more decisively and creates a more meaningful deduction in the year of the gift. Pairing a bunched contribution with a donor-advised fund (DAF) allows the donor to take the full deduction immediately while distributing grants to specific charities over time.
How does the OBBBA’s higher estate tax exemption change charitable giving planning?
With the individual estate tax exemption now set at $15 million and indexed for inflation, some families that previously relied on charitable vehicles primarily to reduce estate exposure may find that rationale is less pressing. That does not mean structures like charitable remainder trusts or charitable lead annuity trusts lose their value — both still offer meaningful income and tax benefits during a donor’s lifetime. But the planning conversation may shift toward current-year efficiency and philanthropic intent, rather than estate reduction, as the primary driver.
About Lynn
Lynn Evans is the Director of Family Office Services and a Tax Advisor at Solidarity Wealth. He previously served as a senior trust advisor at a national private bank and a senior tax manager at an international CPA firm.
Solidarity Wealth is a registered investment adviser. This material is solely for informational purposes. Advisory services are only offered to clients or prospective clients where Solidarity Wealth and its representatives are properly licensed or exempt from licensure. Past performance is no guarantee of future returns. Investing involves risk and possible loss of principal capital. No advice may be rendered by Solidarity Wealth unless a client service agreement is in place.
