With $500,000 AGI, no NOL carryovers, and $10,000 in charitable contributions, how is my allowable charitable deduction calculated under the new 0.5% floor of Section 170(b)(1) from the OBBBA?
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For tax years beginning after December 31, 2025, the One Big Beautiful Bill Act (OBBBA) introduces a new 0.5% floor for individual charitable contribution deductions under Section 170(b)(1)(I). This means that only the amount of charitable contributions exceeding 0.5% of your adjusted gross income (AGI) is deductible. Here’s how your allowable deduction is calculated, step by step, given your facts:
Facts:- AGI: $500,000- Charitable contributions: $10,000 (assume all are cash to public charities for simplicity)- No net operating loss (NOL) carryovers
Step 1: Calculate the 0.5% Floor
0.5% of $500,000 = $2,500
This is the minimum amount of charitable contributions that must be exceeded before any deduction is allowed.
Step 2: Apply the 0.5% Floor
Subtract the floor from your total contributions:$10,000 (total contributions) – $2,500 (floor) = $7,500
Step 3: Apply Percentage Limitations
For cash contributions to public charities, the deduction is limited to 60% of AGI (which is $300,000 for $500,000 AGI). Your $10,000 contribution is well below this limit, so the percentage limitation does not further restrict your deduction.
Step 4: Determine Allowable Deduction
- The allowable deduction is the amount by which your contributions exceed the 0.5% floor, subject to the usual AGI percentage limits.
- In your case: $7,500 is fully deductible.
Step 5: Carryforward of Disallowed Amount
The $2,500 that is disallowed by the floor is not deductible in the current year. Under the OBBBA, if you have no current-year carryforwards, this amount is permanently lost and cannot be carried forward to future years.
Step 6: Summary
- Total contributions: $10,000
- 0.5% floor: $2,500
- Allowable deduction: $7,500
- Disallowed (lost): $2,500
Additional Notes
- If you had charitable contribution carryforwards from prior years, the amount disallowed by the floor could increase your carryforward, but since you have none, the disallowed amount is lost.
- The 0.5% floor applies before the AGI percentage limitations, and the ordering rules for applying the floor are specified in Section 170(b)(1)(I).
Conclusion: With $500,000 AGI and $10,000 in charitable contributions, your allowable charitable deduction for 2026 and later years under the OBBBA is $7,500, with $2,500 disallowed due to the new 0.5% floor.
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