Another takeaway from the passage of OBBBA is the way that charitable donations are handled from a tax perspective. Since the passage of the 2017 Tax Cuts and Jobs Act (TCJA), the majority of tax filers are simply using the standard deduction. That is great since it was increased, however, it has lessened the direct tax benefits of making charitable contributions for many people. OBBBA hasn’t changed that, however it has made a few important changes.
First, TCJA implemented a 60% of Adjusted Gross Income (AGI) cap on charitable deductions. Previously that was 50% and was set to return to that level. With OBBBA, the 60% cap is going to continue which is a benefit for those that make large charitable contributions as a percentage of their AGI. There is also a 0.5% floor when a taxpayer is itemizing on their returns. This means that in order to get the tax benefit, the value of the charitable contribution will need to be meaningful for those that itemize.
But perhaps the most important change is that with OBBBA, even if a tax filer is taking the standard deduction, they will now be allowed to deduct a relatively small amount for their charitable contributions. The amount is $1,000 for single filers and $2,000 for Married filers. To put it simply, even if when taking the standard deduction, tax filers now have the opportunity to contribute to charity and receive a tax benefit that they previously did not.
The important action item here is for when these provisions start in 2026, it might make sense to go back to saving receipts for all charitable contributions, even the smaller ones!