If I itemize deductions in 2025, how does the new 0.5% floor under Section 170(b)(1) enacted by the OBBBA affect the deductibility of my $10,000 charitable contribution given a $500,000 AGI and no NOL carryovers?
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For tax year 2025, the One Big Beautiful Bill Act (OBBBA) introduces a new 0.5% floor on the deductibility of charitable contributions for individuals who itemize deductions. This floor is codified in Section 170(b)(1)(I) and applies to all charitable contributions otherwise allowable as a deduction under Section 170, regardless of the type of property contributed or the type of recipient organization, unless a more specific exception applies.
1. How the 0.5% Floor Works
- The 0.5% floor means that only the amount of your total charitable contributions for the year that exceeds 0.5% of your AGI is deductible.
- For a taxpayer with $500,000 AGI, 0.5% of AGI is $2,500 ($500,000 × 0.005).
- If you make $10,000 in charitable contributions, the first $2,500 is not deductible due to the floor. Only the excess—$7,500—is potentially deductible, subject to the usual AGI percentage limitations for charitable contributions.
2. Step-by-Step Calculation
- Calculate the 0.5% Floor:
- $500,000 AGI × 0.5% = $2,500
- Subtract the Floor from Total Contributions:
- $10,000 (total contributions) − $2,500 (floor) = $7,500
- Apply AGI Percentage Limits:
- The $7,500 remaining is then subject to the usual AGI percentage limits (e.g., 60% for cash to public charities, 30% for capital gain property, etc.). In your case, with $10,000 in contributions and $500,000 AGI, the $7,500 is well below any of the AGI percentage caps, so the entire $7,500 is deductible.
- No Carryforward for Disallowed Amount:
- The $2,500 disallowed by the 0.5% floor is not carried forward unless you have excess contributions that are otherwise limited by the AGI percentage caps. In your scenario, since you do not exceed the AGI percentage limits, the $2,500 is permanently lost as a deduction.
3. Example Calculation
- AGI: $500,000
- Charitable contributions: $10,000
- 0.5% floor: $2,500
- Deductible amount: $10,000 − $2,500 = $7,500
4. Additional Notes
- The 0.5% floor applies before the AGI percentage limits. If you had made larger contributions that exceeded the AGI percentage limits, the disallowed amount due to the floor could increase your charitable contribution carryforward, but only to the extent you have a carryforward from the current year. In your case, with no carryforward, the $2,500 is not deductible and is not carried forward.
- This floor applies to all itemizing individuals for tax years beginning after December 31, 2025.
5. Conclusion
If you itemize deductions in 2025, have $500,000 AGI, and make $10,000 in charitable contributions, the new 0.5% floor under Section 170(b)(1)(I) means only $7,500 of your contributions will be deductible. The first $2,500 is disallowed and, in the absence of a carryforward, is permanently lost as a deduction.
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