One Big Beautiful Bill Rewrites Charitable Tax Rules — Nonprofits Brace for Impact

The One Big Beautiful Bill Act (OBBBA) is reshaping the tax incentives that drive charitable giving in the United States, with sweeping changes taking effect in tax year 2026. The legislation introduces a new deduction for non-itemizers while simultaneously creating new barriers for itemizers and corporations — a mixed bag that has the nonprofit sector scrambling to model the net effect on donations.

A New Deduction for 90 Percent of Filers

For the roughly 90 percent of taxpayers who take the standard deduction, the OBBBA creates a permanent above-the-line charitable deduction of $1,000 for single filers and $2,000 for married couples filing jointly. This marks the first time since the 2017 Tax Cuts and Jobs Act effectively eliminated the charitable incentive for most Americans that non-itemizers will receive a tax benefit for donating.

The provision comes with a notable restriction: gifts to donor-advised fund sponsors and certain private foundations do not qualify.

New Floors and Caps Squeeze Larger Donors

Itemizing taxpayers now face a 0.5 percent adjusted gross income floor before charitable deductions take effect. A couple earning $300,000 would need to donate more than $1,500 before any deduction applies. For high-income filers in the 37 percent bracket, the tax benefit of charitable deductions is capped at 35 percent — a modest but symbolically significant reduction.

Corporations face a steeper change: charitable contributions are only deductible to the extent they exceed 1 percent of taxable income, and the longstanding 10 percent ceiling remains. A company with $10 million in taxable income would lose the deduction on its first $100,000 in charitable giving.

What Nonprofits and Grant Seekers Should Do Now

The net impact on total giving remains uncertain. The non-itemizer deduction could unlock billions in newly incentivized small-dollar donations, while the itemizer floors may suppress mid-range giving. Financial advisors are already recommending that donors consider bunching contributions into fewer tax years to clear the AGI floor, and donating appreciated assets to maximize benefits under the new rules.

For nonprofits that depend on grant funding, the corporate floor is the provision to watch. Foundations funded by corporate contributions may see reduced inflows, potentially tightening the philanthropic pipeline. Grant seekers tracking these shifts can find updated analysis at grantedai.com.

For a deeper dive into how the OBBBA affects foundation giving and grant availability, visit the Granted blog.