How do I determine the cap on my charitable deductions under section 170(b) after OBBBA?
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To determine the cap on your charitable deductions under section 170(b) for tax years beginning after December 31, 2025, following the enactment of the One Big Beautiful Bill Act (OBBBA), you must apply a new multi-step process that incorporates both the traditional percentage limitations and a new “floor” on deductions. Here’s a comprehensive step-by-step guide, with legal details and references:
1. Identify the Type of Contribution and Donee
Section 170(b) imposes different percentage limitations depending on the type of property contributed and the type of organization receiving the gift:
- Cash contributions to public charities (including most churches, educational institutions, and government entities): Up to 60% of your contribution base (AGI), as made permanent by OBBBA.
- Non-cash contributions (e.g., appreciated property) to public charities: Up to 50% of AGI, but subject to further limitations for capital gain property.
- Contributions to certain private foundations, veterans’ organizations, fraternal societies, and cemetery organizations: Up to 30% of AGI for capital gain property, and up to 20% of AGI for other property.
- Qualified conservation contributions: Up to 50% of AGI, or 100% for qualified farmers and ranchers, with special carryover rules.
2. Apply the Percentage Limitations
The percentage limitations are applied in a specific order, and the deduction for each “bucket” of contributions is subject to its own cap:
- 60% Limit: Cash contributions to public charities (section 170(b)(1)(G)), but only to the extent they exceed the 50% limit for non-cash contributions to public charities.
- 50% Limit: Non-cash contributions to public charities (section 170(b)(1)(A)).
- 30% Limit: Contributions of capital gain property to public charities (section 170(b)(1)(C)), unless you elect to reduce the deduction by the amount of unrealized appreciation, in which case the 50% limit applies.
- 20% Limit: Contributions to certain private foundations and other organizations not described in section 170(b)(1)(A).
Note: The deduction for each category is calculated before applying the new floor (see below), and any excess contributions can generally be carried forward for up to five years, subject to the same limitations in the carryover years.
3. Apply the New 0.5% Floor (for Individuals)
For tax years beginning after December 31, 2025, OBBBA introduces a new “floor” for individuals: you may only deduct charitable contributions to the extent they exceed 0.5% of your AGI (the “contribution base”).
- Section 170(b)(1)(I): “Any charitable contribution otherwise allowable (without regard to this subparagraph) as a deduction under this section shall be allowed only to the extent that the aggregate of such contributions exceeds 0.5 percent of the taxpayer's contribution base for the taxable year.”
The floor is applied in a specific order:1. 20% bucket (appreciated property to nonpublic charities)2. 30% capital gain property to public charities3. 30% noncapital gain property to nonpublic charities4. 50%/100% qualified conservation contributions5. 50% nonappreciated property to public charities6. 60% cash to public charities
Example: If your AGI is $200,000, the floor is $1,000. If your total allowable charitable contributions (after applying the percentage limits) are $5,000, only $4,000 is deductible.
4. Apply the 1% Floor (for Corporations)
For corporations, OBBBA imposes a 1% floor: only contributions exceeding 1% of taxable income are deductible, up to the existing 10% cap.
5. Apply the Overall Limitation on Itemized Deductions (Section 68)
OBBBA reinstates a limitation on the total benefit of itemized deductions for high-income taxpayers. For tax years after 2025, itemized deductions are reduced by 2/37 of the lesser of:- The total amount of itemized deductions, or- The amount by which taxable income exceeds the 37% bracket threshold.
This further limits the tax benefit of charitable deductions for high-income individuals.
6. Carryforwards
If your charitable contributions exceed the applicable percentage limits, the excess can be carried forward for up to five years. Under the new law, if the floor disallows part of your deduction in the current year and you have a carryforward, the disallowed amount increases your carryforward for the next year. If you have no carryforward, the disallowed amount is lost.
7. Special Rules
- Nonitemizers: OBBBA reinstates and expands the above-the-line deduction for nonitemizers: up to $1,000 ($2,000 for joint filers) for cash contributions to public charities (excluding donor-advised funds and supporting organizations).
- Qualified Conservation Contributions: These have their own special limits and carryover rules.
- Ordering Rules: The law specifies the order in which the floors and percentage limits are applied, which is important for maximizing your deduction and carryforwards.
8. Summary of Steps
- Classify each contribution by type of property and recipient.
- Apply the applicable percentage limit to each category.
- Sum the allowable deductions from all categories.
- Subtract the 0.5% (individual) or 1% (corporate) floor from the total.
- Apply the overall itemized deduction limitation if applicable.
- Carry forward any excess contributions, including amounts disallowed by the floor if you have a carryforward.
10. Practical Example
Suppose your AGI is $200,000 in 2026. You make the following contributions:- $90,000 cash to a public charity- $20,000 appreciated stock to a public charity (FMV, held >1 year, basis $5,000)- $5,000 cash to a private foundation
Step 1: Apply percentage limits:- Cash to public charity: up to 60% of AGI = $120,000- Appreciated stock to public charity: up to 30% of AGI = $60,000- Cash to private foundation: up to 30% of AGI = $60,000
Step 2: Total contributions = $90,000 + $20,000 + $5,000 = $115,000
Step 3: Apply the 0.5% floor: 0.5% of $200,000 = $1,000
Step 4: Deduct $1,000 from $115,000 = $114,000 allowable deduction (before Pease/Section 68 limitation).
Step 5: If you have carryforwards, the $1,000 disallowed by the floor increases your carryforward.
Step 6: If your taxable income exceeds the 37% bracket, apply the Section 68 limitation to further reduce your itemized deductions.
In summary: After OBBBA, you must (1) apply the traditional percentage caps by type of gift and donee, (2) subtract the new 0.5% (individual) or 1% (corporate) floor, (3) apply the overall itemized deduction limitation if applicable, and (4) manage carryforwards according to the new rules. The process is more complex and requires careful ordering and calculation to maximize your deduction.
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