Charitable Giving in 2026: How the One Big Beautiful Bill Act Reshapes the Rules for Donors

What individuals, corporations, and nonprofit partners need to know about the new deduction landscape, and the federal scholarship tax credit arriving in 2027

The One Big Beautiful Bill Act (OBBBA), signed into law on July 4, 2025, in my opinion represents the most consequential restructuring of the federal charitable deduction in a generation. While many of the law’s provisions touched 2025 returns, its charitable giving rules arrived in full force for tax years beginning after December 31, 2025. That means 2026 is the first year in which donors, from households making modest cash gifts to corporations and philanthropists contributing appreciated property, building materials, fine art, and entire deconstructed structures, must navigate an entirely new set of floors, caps, and incentives. For the clients we serve at The Green Mission Inc. and Probity Appraisal Group, whose gifts frequently take the form of tangible personal property and salvaged building materials, understanding these changes is essential to preserving both philanthropic impact and tax benefit. For our tax clients at MAS LLC, charitable giving planning is critical to ensure maximum impact. Please see our article here with comprehensive OBBBA changes effective in 2026: OBBBA in 2026: A Comprehensive Guide to the Provisions Taking Effect This Year And the Act’s charitable provisions do not stop at 2026: a first-of-its-kind federal tax credit for scholarship contributions takes effect on January 1, 2027, and warrants planning attention now.

A New Deduction for Taxpayers Who Do Not Itemize

For the first time since the temporary pandemic-era deduction expired after 2021, taxpayers who claim the standard deduction may also deduct charitable gifts. Beginning with the 2026 tax year, non-itemizers may deduct qualifying cash contributions of up to $1,000 for single filers and $2,000 for married couples filing jointly under new Internal Revenue Code Section 170(p). The deduction is taken below the line, after the calculation of adjusted gross income, and it is not indexed for inflation.

The design of the provision carries important limitations. Only cash gifts qualify, and they must be made directly to an eligible public charity described in Section 170(b)(1)(A), such as a church, school, hospital, or operating public charity. Contributions to donor-advised fund sponsors and to certain supporting organizations and private foundations are expressly excluded. Even with those constraints, the potential reach is enormous. Since the Tax Cuts and Jobs Act nearly doubled the standard deduction, only roughly ten percent of households have itemized, leaving approximately ninety percent of taxpayers with no federal tax incentive to give. When a similar but far smaller $300 deduction existed under the CARES Act in 2020 and 2021, approximately ninety million taxpayers claimed it. Nonprofits should expect, and actively cultivate, renewed engagement from small and mid-level donors who once again see a tangible financial acknowledgment of their generosity.

The New 0.5 Percent Floor for Itemizers

Taxpayers who itemize now face a threshold that did not previously exist. Under new Section 170(b)(1)(I), charitable contributions are deductible only to the extent that total contributions for the year exceed 0.5 percent of the taxpayer’s contribution base, which is generally adjusted gross income computed without regard to any net operating loss carryback. A taxpayer with $500,000 of adjusted gross income therefore has a $2,500 floor; if that taxpayer contributes $20,000 during the year, only $17,500 is potentially deductible in that year. The first 0.5 percent of the contribution base generally produces no current-year deduction. Special carryforward rules may preserve amounts disallowed by the floor when the taxpayer also has contributions carried forward under an applicable percentage limitation.

The practical consequence is that timing now matters more than it ever has. Because the floor applies annually, donors who spread moderate gifts evenly across many years may lose a portion of their current-year deduction to the floor each year. Concentrating, or bunching, several years of intended giving into a single tax year can reduce the cumulative effect of repeatedly applying the annual floor, subject to the applicable percentage limitations and carryforward rules, and it pairs naturally with larger, less frequent gifts of property. A substantial in-kind contribution, such as the donation of salvageable building materials from a whole-structure deconstruction or a significant collection of art or antiques, can clear the floor decisively in the year of the gift while multiplying the philanthropic benefit to the receiving organization.

A Reduced Benefit for Donors in the Top Bracket

Layered on top of the floor is a new overall limitation on itemized deductions for the highest earners. For taxpayers whose income reaches the 37 percent bracket, the new limitation generally restricts the marginal federal income tax benefit attributable to affected itemized deductions to 35 percent. Mechanically, itemized deductions are reduced by two thirty-sevenths of the lesser of total itemized deductions or the income exceeding the 37 percent threshold, a new permanent limitation on the tax benefit of itemized deductions for taxpayers in the 37 percent bracket. In plain terms, a top-bracket donor who gives $1,000 now sees the value of that deduction limited to approximately $350 rather than $370. The reduction is modest in percentage terms, but for donors giving at scale or structuring multi-year pledges, it can meaningfully influence the timing, structure, and vehicle of major gifts.

Corporate Giving: A One Percent Floor Raises the Bar

Corporations face their own new threshold. For tax years beginning after December 31, 2025, a corporation may deduct charitable contributions only to the extent that total contributions exceed one percent of taxable income, while the longstanding ten percent ceiling remains in place. A corporation that historically gave sporadically or below the one percent mark may now find that its gifts generate no current-year deduction. Special carryforward rules apply, including a limited rule for amounts disallowed by the floor in a year in which contributions also exceed the ten percent ceiling. Companies already giving above the threshold have an incentive to consolidate and deepen their philanthropic commitments. Fiscal-year corporations should consult their advisors on how the effective date applies to their particular year. For nonprofits, the message is clear: corporate partnerships built on measurable outcomes and sustained, strategic giving will be rewarded under the new regime, and this dynamic may favor substantial in-kind corporate contributions, including donations of inventory, furniture, fixtures, equipment, and decommissioned building assets. See our article here with a detailed overview of inventory donations under IRS Section 170(e)(3) for C Corporations: Maximizing Tax Deductions Through Inventory Donations

What Remains Favorable

Amid the new limitations, several taxpayer-friendly rules were preserved or enhanced. The ability to deduct qualifying cash contributions to qualifying organizations up to 60 percent of adjusted gross income was made permanent. The federal estate and gift tax exclusion rose to $15 million per person, or $30 million for a married couple, for 2026, with inflation adjustments thereafter, which shifts the estate-planning calculus toward lifetime charitable giving for all but the largest estates. For IRA owners aged 70 and one half or older, the qualified charitable distribution remains one of the most efficient giving tools available: amounts up to the inflation-adjusted annual QCD limit for 2026 may be transferred directly to charity, excluded from gross income entirely, counted toward any required minimum distribution, and, critically, exempt from the new 0.5 percent floor because the distribution never enters the deduction system at all.

Why Noncash Giving Matters More Than Ever

The new architecture of floors and caps can increase the strategic value of donating appreciated property rather than cash. A direct gift of qualifying long-term appreciated property can allow the donor to avoid recognition of built-in gain while claiming a deduction based on fair market value, subject to the applicable percentage limitations and property-specific rules. Tangible personal property, including art, antiques, furnishings, and salvaged building materials, requires additional analysis because the deduction may be reduced when the property’s use by the charity is unrelated to its exempt purpose. Accordingly, fair market value treatment should not be assumed merely because appreciated property is donated.

With larger and more concentrated gifts, however, comes heightened substantiation responsibility. Noncash contributions exceeding $5,000 generally require a qualified appraisal prepared by a qualified appraiser under Section 170(f)(11) and the accompanying Treasury Regulations, reported on Form 8283 and, for gifts exceeding $500,000, attached to the return itself, subject to statutory exceptions for certain property such as publicly traded securities. Deconstruction donations, estate property, and specialized collections demand rigorous, defensible valuation methodology, including appropriate market-data analysis grounded in verified secondary market sources, compliance with the applicable qualified-appraisal requirements under Section 170(f)(11) and the Treasury Regulations, and applicable professional appraisal standards. In an environment where every deductible dollar must first clear a statutory floor and may then be trimmed by the 35 percent cap, donors simply cannot afford valuations that fail IRS scrutiny. Careful appraisal practice is not merely a compliance exercise; for significant noncash gifts, it is a critical foundation of the claimed tax benefit.

Looking Ahead to 2027: The Federal Scholarship Tax Credit

While the provisions described above govern 2026 giving, donors and nonprofits should already be planning for a new incentive that arrives on January 1, 2027. Section 70411 of the Act created new Internal Revenue Code Section 25F, which establishes a permanent, nonrefundable federal income tax credit of up to $1,700 per taxpayer for qualifying cash contributions to scholarship granting organizations, commonly called SGOs, that fund scholarships for eligible elementary and secondary students. The credit is effective for taxable years ending after December 31, 2026, and Congress paired it with new Section 139K, which excludes the resulting scholarships from the recipients’ gross income beginning in 2027.

The distinction between a credit and a deduction is critical, particularly under the new charitable architecture. A deduction reduces taxable income, so its value generally depends on the donor’s marginal tax rate and, beginning in 2026, an itemized charitable deduction is also subject to the new 0.5 percent floor and other applicable limitations. The Section 25F credit, by contrast, directly reduces federal income tax liability. Beginning in 2027, an eligible individual taxpayer who makes a qualifying cash contribution to a listed scholarship granting organization may claim a nonrefundable federal income tax credit of up to $1,700 per taxable year. The credit is not dependent on whether the taxpayer itemizes deductions and is not subject to a donor-income phaseout. Because the credit is nonrefundable, however, its current-year use is limited by the taxpayer’s federal income tax liability, and a taxpayer without sufficient liability may not realize the full benefit of the otherwise allowable credit in that year. Unused amounts may be carried forward under Section 25F(f) for up to five taxable years and are treated as used on a first-in, first-out basis.

The statute prevents duplication of tax benefits. A contribution for which the Section 25F credit is allowed may not also generate a federal charitable deduction under Section 170, and the federal credit is reduced by the amount of any state income tax credit allowed for qualified contributions made by the taxpayer during the taxable year. In states with generous scholarship credit programs, a state credit that equals or exceeds $1,700 for the same qualified contributions can eliminate the federal credit entirely. Accordingly, donors in states offering scholarship contribution credits should model the interaction between the federal and state incentives before making or characterizing a contribution.

Availability of the federal credit also depends on state participation and SGO qualification. A state or the District of Columbia must elect to participate and provide the IRS with the required list of qualifying scholarship granting organizations. Revenue Procedure 2026-6 established an advance-election procedure for the 2027 calendar year using Form 15714, and participation is already well underway: as of late July 2026, the IRS reported that thirty states, including Virginia, had made advance elections to participate for 2027, a count that will continue to evolve as additional states elect. The IRS has continued to issue implementation guidance as the program approaches its January 1, 2027 effective date. Before contributing in reliance on the credit, donors should confirm that their state participates and that the intended organization appears on the applicable qualifying SGO list.

The qualification standards for SGOs are demanding. A qualifying organization must be a Section 501(c)(3) public charity that provides scholarships to ten or more students attending more than one school, devotes at least ninety percent of its income to scholarships for qualified elementary and secondary education expenses, maintains separate accounting for qualified contributions, applies statutory priority rules favoring prior recipients and their siblings, and serves students from households earning not more than 300 percent of area median gross income. Education-focused charities that intend to participate should begin evaluating their eligibility, governance, and accounting structures well before their state’s certification deadline.

For donors, the planning implication is meaningful but conditional. Beginning in 2027, the first $1,700 of annual giving directed to a qualifying SGO in a participating state can produce a larger federal benefit than the same dollars given as a deductible cash contribution, provided the donor has sufficient federal income tax liability to absorb the nonrefundable credit and no offsetting state credit reduces or eliminates it. Where the credit applies, it also leaves the donor’s deduction capacity under Section 170 fully available for other gifts, including gifts of appreciated property and salvaged building materials that must still clear the 0.5 percent floor.

Implications for Nonprofit Organizations

Nonprofits should approach 2026 as an opportunity rather than a setback. The new deduction for non-itemizers restores a giving incentive to tens of millions of households, and organizations that communicate the change clearly and early, particularly in year-end campaigns, stand to re-energize their broad donor base. Major donor conversations should acknowledge the new floor and cap while emphasizing bunching strategies, appreciated property gifts, and qualified charitable distributions. Corporate development teams should recognize that the one percent floor rewards sustained partnership over episodic sponsorship. Finally, scholarship granting organizations and education-focused institutions should prepare now for the Section 25F credit described above, including confirming state participation, pursuing certification, and educating their donor communities before the 2027 giving season opens.

Planning Is the Difference

The value of a charitable gift in 2026 depends more than ever on the donor’s income, the form of the asset contributed, the timing of the contribution, and the vehicle through which it flows. Donors contemplating significant gifts of property, from a single antique to the contents of an entire estate or the salvageable materials of a building slated for deconstruction, should engage qualified tax and appraisal professionals before the gift is made, not after. Donors with education-focused philanthropic goals should also weigh the arrival of the Section 25F credit when sequencing gifts across 2026 and 2027. Thoughtful planning ensures that generosity retains its full measure of both philanthropic and financial value under the new law.

The Green Mission Inc. provides IRS-qualified appraisals for deconstruction and building material donations nationwide, Probity Appraisal Group provides qualified appraisals of art, antiques, and collectibles, GM-ESG provides sustainability ESG reporting and metrics for corporations and large organizations, and MAS LLC is a tax advisory firm servicing small businesses for 26 years. . Jessica I. Marschall, CPA, ISA AM, is President and CEO of both firms and of Marschall Accounting Services LLC. This article is for informational purposes only and does not constitute tax advice; taxpayers should consult their own advisors regarding their particular circumstances.