OBBBA Charitable Deduction Floors: What the 0.5% Itemizer Rule and 1% Corporate Rule Mean for 2026 Giving

Key takeaways

• Itemizers now lose the first 0.5% of AGI. Under §170(b)(1)(I), an itemizing individual deducts charitable gifts only to the extent the aggregate exceeds 0.5% of the contribution base (AGI, before any NOL carryback). At $300,000 AGI, the first $1,500 of giving produces no deduction.
• Corporations must clear 1% of taxable income first, under §170(b)(2)(A), and the existing 10% ceiling is retained. The deductible band is the slice between 1% and 10% of taxable income.
• A new permanent above-the-line deduction of up to $1,000 single / $2,000 MFJ is available to non-itemizers, but only for cash gifts to public charities described in §170(b)(1)(A) — not gifts to donor-advised funds, supporting organizations, or private foundations.
• Top-bracket benefit is capped at 35 cents per dollar. For 37%-bracket taxpayers, the tax value of itemized deductions — charitable included — is limited to 35%, not 37%.
• Pre-2026 carryovers are shielded. Charitable carryforwards attributable to contributions made before January 1, 2026, are not subject to the new 0.5% floor when used in later years. All four provisions are effective for tax years beginning after December 31, 2025.

What changed in §170

OBBBA left the percentage ceilings most advisors think of first largely intact — the 60% AGI limit for cash to public charities and the 50%/30%/20% limits remain. What it added were floors underneath the deduction and a cap on the value it generates. The result is a narrower deductible band at both ends of the income spectrum and a genuine new benefit in the middle.

The 0.5% floor for itemizers

New §170(b)(1)(I) allows an itemizing individual a charitable deduction only to the extent total qualifying contributions exceed 0.5% of the taxpayer's contribution base for the year. The contribution base is AGI computed without regard to any net operating loss carryback — the same definition used throughout §170(b)(1). The floor applies across the board, regardless of whether the gift is cash or appreciated property and regardless of whether the donee is a public charity or a private foundation.

The floor runs against categories of giving subject to the lowest AGI percentage limits first, preserving as much high-limit (e.g., cash-to-public-charity) deduction as possible. For most donors the practical effect is straightforward: subtract 0.5% of AGI from total giving, and only the excess is deductible.

The carryforward consequence deserves precision, because it is easy to overstate. An amount disallowed solely because it falls below the 0.5% floor generally does not carry forward — if a taxpayer gives exactly 0.5% of AGI, there is neither a current deduction nor a carryforward. But where the donor also exceeds an applicable percentage ceiling in the same year, the excess that carries forward under §170(d) is increased — per §170(d)(1)(C) — by the amount disallowed under §170(b)(1)(I). In other words, the floor is a true loss for the donor whose giving sits at or just above 0.5% of AGI, but it folds into the existing five-year carryover for the donor who is already over a percentage limit.

The corporate 1% floor

New §170(b)(2)(A) allows a corporation a charitable deduction only to the extent its contributions exceed 1% of taxable income, and not in excess of 10% of taxable income. The 10% ceiling — the long-standing corporate cap — is unchanged. The deductible amount is the band between the 1% floor and the 10% ceiling.

Two carryover points follow. Amounts disallowed because they exceed the 10% ceiling continue to carry forward five years, as before, and — mirroring the individual rule — when a corporation exceeds the ceiling, the amount disallowed by the 1% floor is added to that carryforward as well. Corporate carryovers arising in tax years beginning after 2026 are themselves subject to the 1% floor when deployed in a later year. Only where a contribution fails to clear the 1% floor with nothing above the ceiling to carry is the floor amount simply not deductible.

The non-itemizer deduction

For the roughly 86% of filers who take the standard deduction, OBBBA restored — and made permanent — an above-the-line charitable deduction. A standard-deduction filer may deduct up to $1,000 (single) or $2,000 (married filing jointly) for the year. The benefit is narrow by design: it reaches cash contributions only — not appreciated securities or other property — and only gifts to public charities described in §170(b)(1)(A). Contributions to a donor-advised fund (as defined in §4966(d)(2)), to a §509(a)(3) supporting organization, or to a private foundation do not qualify.

The 35% benefit cap

Independently of the floors, OBBBA caps the tax value of itemized deductions for taxpayers in the 37% bracket at 35 cents per dollar. For a top-bracket donor, a deductible charitable dollar is now worth 35%, not 37% — a roughly two-cent erosion that stacks on top of the 0.5% floor.

The deductible band for individuals now opens at 0.5% of AGI and, for the top bracket, is worth 35 cents on the dollar — two changes that move in the same direction.

Frequently asked questions

My client has $300,000 AGI and gives about $4,000 a year. What is the real change?

The first 0.5% of AGI — here, $1,500 — is no longer deductible. Of $4,000 in gifts, $2,500 is deductible (assuming the client itemizes and is within the 60% ceiling). The lost $1,500 produces no current deduction and, because the client is nowhere near a percentage ceiling, no carryforward. For donors at this level, bunching two or three years of giving into a single year — often through a donor-advised fund funded in the bunching year — clears the floor once instead of forfeiting it annually.

Does the corporate floor hurt thin-margin or volatile-income companies more?

Yes. The 1% floor is measured against taxable income each year, so a corporation with a low- or break-even-income year may get little or no deduction for gifts it nonetheless made. A C corporation with an established giving program should size and time contributions to land inside the 1%-to-10% band in a profitable year rather than spreading small amounts across lean ones.

Can a non-itemizer fund a donor-advised fund and take the new $1,000/$2,000 deduction?

No. The above-the-line deduction is limited to cash gifts made directly to public charities under §170(b)(1)(A). Gifts to donor-advised funds, supporting organizations, and private foundations are expressly excluded. A standard-deduction filer who wants the deduction must give cash to an operating public charity.

Are charitable carryforwards from 2024 and 2025 caught by the new floor?

No. Carryover amounts attributable to contributions made before January 1, 2026, are exempt from the 0.5% floor when they are used in later years. The floor applies to current-year giving in tax years beginning after December 31, 2025.

Bottom line

For tax years beginning after December 31, 2025, model giving against the new floors before year-end, not after. Individual itemizers near the 0.5% threshold should evaluate bunching multiple years of gifts — frequently via a donor-advised fund — so a single year clears the floor; top-bracket donors should weigh the combined drag of the floor and the 35% value cap. C corporations should plan contributions to land inside the 1%-to-10%-of-taxable-income band in a profitable year. Standard-deduction filers should capture the new $1,000/$2,000 above-the-line deduction, but only with cash gifts to operating public charities. These are statutory rules in P.L. 119-21; confirm any subsequent IRS guidance on ordering and carryover mechanics before finalizing a multi-year plan.