What limitations apply to charitable contribution deductions based on income levels?
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The deduction for charitable contributions by individuals is subject to several percentage limitations based on the taxpayer’s adjusted gross income (AGI), the type of property contributed, and the type of organization receiving the contribution. These limitations are designed to prevent taxpayers from sheltering too much income through charitable giving in a single year, while allowing excess contributions to be carried forward to future years. Below is a comprehensive explanation of these limitations as they apply for tax years beginning after December 31, 2025, including changes made by the One Big Beautiful Bill Act (OBBBA):
1. General Percentage Limitations (Post-2025 Law)
A. 60% Limitation for Cash Contributions
- Cash contributions to most public charities, certain private operating foundations, and federal, state, and local governments for public purposes are generally deductible up to 60% of the taxpayer’s AGI (referred to as the "contribution base").
- This 60% limit applies only to cash gifts and not to non-cash property.
B. 50% Limitation for Other Contributions
- Non-cash contributions (other than capital gain property) to the same types of organizations are generally limited to 50% of AGI.
- This includes gifts of property such as clothing, household items, or other tangible personal property.
C. 30% Limitation for Certain Contributions
- Contributions to certain private foundations, veterans’ organizations, fraternal societies, and cemetery organizations are limited to 30% of AGI.
- Gifts of capital gain property (e.g., appreciated securities held more than one year) to public charities are also generally limited to 30% of AGI if the deduction is based on fair market value.
D. 20% Limitation for Capital Gain Property to Certain Organizations
- Gifts of capital gain property to organizations not described above (e.g., certain private foundations) are limited to 20% of AGI.
E. Special Rule for Qualified Conservation Contributions
- Qualified conservation contributions (e.g., conservation easements) are generally deductible up to 50% of AGI.
- For qualified farmers and ranchers, the limit is increased to 100% of AGI if the property is subject to a restriction that it remain available for agricultural or livestock production.
2. New 0.5% Floor for Individuals and 1% Floor for Corporations (OBBBA, Effective 2026)
- Individuals: Only the amount of total charitable contributions that exceeds 0.5% of AGI is deductible. This floor is applied in a specific order, starting with contributions subject to the lowest percentage limits and ending with those subject to the highest.
- Corporations: Only the amount of total charitable contributions that exceeds 1% of taxable income is deductible, up to a maximum of 10% of taxable income.
3. Ordering Rules and Carryovers
- Ordering: When a taxpayer makes multiple types of contributions, the deduction is computed in a specific order:
- Contributions subject to the lowest percentage limits (e.g., 20% or 30%).
- Then those subject to higher limits (e.g., 50% or 60%).
- Qualified conservation contributions are considered after all other contributions.
- Carryovers: If contributions exceed the applicable AGI limits, the excess can be carried forward for up to five years (15 years for qualified conservation contributions), subject to the same percentage limitations in the carryover years.
4. Special Rules and Exceptions
- Above-the-line deduction for non-itemizers: For tax years after 2025, non-itemizers may deduct up to $1,000 ($2,000 joint) in cash contributions to public charities, subject to the same percentage and floor limitations.
- Qualified conservation contributions by pass-through entities: Deductions are disallowed if the amount of the contribution exceeds 2.5 times the sum of each ultimate member’s relevant basis, with exceptions for family partnerships and certified historic structures.
- Substantiation: Contributions of $250 or more require a contemporaneous written acknowledgment from the charity. Non-cash contributions over $500 require Form 8283, and those over $5,000 require a qualified appraisal.
5. Summary Table of AGI Limitations (Individuals, Post-2025)
6. Practical Example
Suppose a taxpayer with $100,000 AGI in 2026 makes the following contributions:- $10,000 cash to a public charity- $20,000 appreciated stock (held >1 year) to a public charity- $5,000 cash to a private foundation
Step 1: Apply the 0.5% floor: $100,000 × 0.5% = $500. Only contributions above $500 are deductible.
Step 2: Apply the percentage limits:- Cash to public charity: up to 60% of AGI ($60,000)- Appreciated stock to public charity: up to 30% of AGI ($30,000)- Cash to private foundation: up to 30% of AGI ($30,000)
Step 3: Deduct in order:- First, the $5,000 to the private foundation (30% limit)- Then, the $20,000 appreciated stock to the public charity (30% limit)- Then, the $10,000 cash to the public charity (60% limit, but only after the above)
Step 4: Total contributions = $35,000. Subtract the $500 floor, so $34,500 is potentially deductible, subject to the above limits.
In summary: The deduction for charitable contributions is generally limited to a percentage of AGI, with the specific limit depending on the type of property and the recipient organization. For tax years after 2025, a new 0.5% floor applies to individuals, and a 1% floor applies to corporations. Excess contributions can be carried forward, and special rules apply to conservation easements and certain pass-through entities. Proper substantiation is required for all deductions.
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