The New 0.5% Charitable Floor: Why 2025 Is a Key Year for Giving
Posted on August 08, 2025
Beginning in 2026, the One Big Beautiful Bill Act (OBBBA) introduces a change to the deductibility of charitable contributions for individuals. Under the OBBBA, taxpayers who itemize deductions will only be able to deduct charitable gifts to the extent that their total annual contributions exceed 0.5% of their adjusted gross income (AGI). More specifically, the first 0.5% of AGI given to charity each year will not be deductible and only amounts above that threshold will qualify for a tax deduction. This new “floor” applies to all types of charitable gifts and is in addition to existing AGI-based percentage limits on charitable deductions.
Why Accelerate Charitable Giving in 2025?
With the 0.5% charitable floor taking effect beginning in tax year 2026, 2025 represents the last opportunity for taxpayers to maximize the deductibility of their charitable gifts under the current rules, which has no such charitable deduction floor.
Consider this example:
Cecilia has $10 million in adjusted gross income and typically donates $100,000 cash to a public charity each year; for purposes of this example assume Cecilia does not have any other itemized deductions and is in the top tax bracket of 37%.
Under current law, in 2025, Cecilia can deduct the full $100,000 as a charitable contribution and would receive a federal tax benefit of $37,000. However, starting in 2026, the new rule imposes this 0.5% floor on charitable deductions, meaning only the portion of charitable giving that exceeds 0.5% of her AGI, $50,000 in this case ($10M * 0.5%), will be deductible. As a result, only $50,000 of Cecilia’s $100,000 annual donation will be eligible for a deduction beginning in 2026; the first $50,000 is not deductible (a lost tax benefit of $18,500).
If we were to extrapolate Cecilia’s fact pattern over a 5-year period, by bunching her donations into 2025 (in this case that would be $500,000), Cecilia would receive a federal tax benefit of $185,000 on her 2025 tax return. If Cecilia were to NOT bunch her donations in 2025 and instead continue to donate $100,000 each year through 2029, the 0.5% floor by itself would limit Cecilia’s tax benefit to $18,500 in tax years 2026-2029 giving her a tax benefit a total tax benefit of $111,000 ($37,000 + $18,500(4)) over the five years vs. the $185,000 benefit from frontloading the contributions in 2025. That is a potential tax savings of $74,000.
Donor Advised Funds (DAFs)
DAFs can be an attractive tool in your charitable planning strategy. DAFs allow individuals to make contributions to a charitable fund and receive an immediate tax deduction for the value contributed and then disburse the funds from a DAF to charitable organizations over time. DAFs can be especially powerful when using highly appreciated securities to fund the contributions as the individual is able to avoid paying capital gains taxes on the appreciation but is still permitted a tax deduction based on the fair market value of the security.
If you are new to DAFs and are looking to set up an account, Topel Forman’s Wealth Management team is available to help get you started so that you can take advantage of this tax planning opportunity. Please reach out to your Topel Forman tax adviser for more information.
Conclusion
While accelerating charitable giving into 2025 can provide a valuable tax benefit before the new 0.5% AGI floor takes effect, individuals should carefully consider their overall tax liability and planning objectives. If a taxpayer generates a charitable deduction carryforward by making large gifts in 2025 that exceed the existing AGI limitations, any unused deduction carried into 2026 or later years will still be subject to the 0.5% floor, potentially limiting the benefit of the accelerated giving. Likewise, those who already have substantial charitable carryforwards should evaluate whether additional contributions in 2025 will provide a meaningful tax advantage, since both current and carryforward deductions will be reduced by the floor in post-2025 years and any disallowed amounts will continue to be subject to the same limitation in future years.
In addition to the new 0.5% charitable floor, starting in 2026, the OBBBA also imposes a further limitation for those with income above the 37% bracket threshold that needs to be considered, i.e., total itemized deductions will be reduced by 2/37 of the lesser of either the total itemized deductions or the amount by which taxable income exceeds the threshold.
These two provisions, the 0.5% charitable deduction floor and the new limitation on overall itemized deductions, will reduce the tax benefit of charitable giving for high-income clients starting in 2026. Accordingly, taxpayers who are considering charitable gifts should consider acting in 2025 to take full advantage of the current deduction rules before the new limitation(s) take effect. If you have questions about how the 0.5% charitable floor may impact your individual tax situation, please contact your Topel Forman tax adviser.
