Charitable Giving under OBBBA (2026+): New 0.5% AGI Floor, K-12 Scholarship Credit & AGI Limits
For U.S. individual taxpayers • Updated for 2025–2027 implementation timelines
Quick Take (What Changed)
- New charitable “floor” from 2026: Only the portion of your itemized charitable gifts that exceeds 0.5% of AGI is deductible. The floor applies before the usual percentage caps.
- AGI percentage limits remain: Cash gifts to public charities stay deductible up to 60% of AGI (permanent); appreciated assets to public charities generally 30% of AGI; to private foundations generally 20% of AGI.
- 35% cap on deduction value (from 2026): Itemized deductions (including charitable) can reduce tax only up to a 35% value cap even if your marginal rate is higher.
- New K-12 scholarship credit (starts 2027): A nonrefundable federal credit up to $1,700 per taxpayer for cash gifts to state-approved Scholarship Granting Organizations (SGOs); no double-dipping with a charitable deduction, and reduced if a state credit is also claimed. State opt-in required.
- Non-itemizers: A revived above-the-line charitable deduction lets standard-deduction filers claim up to $1,000 ($2,000 MFJ) for eligible cash gifts to public charities (DAFs/supporting orgs excluded).
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1) OBBBA overview & implementation timelines
Effective for 2026 tax year
- New 0.5% of AGI floor for itemized charitable deductions.
- 35% cap on the value of itemized deductions for high-income filers.
- 60% AGI cash-gift limit to public charities is permanent.
Effective for 2027 tax year
- New federal K-12 SGO credit up to $1,700 per taxpayer, nonrefundable; state participation required and no double benefit with a charitable deduction.
2) The new 0.5% AGI floor: how it works
Starting in 2026, you only begin to get an itemized charitable deduction once your total charitable giving for the year exceeds 0.5% of AGI. The floor is applied before the percentage-of-AGI caps and before any 35% value-cap effects. If your gifts don’t clear the floor, there’s no deduction (unless you use the separate non-itemizer write-off).
3) AGI limits that still apply
After clearing the 0.5% floor, gifts are still limited by long-standing AGI percentage caps:
- Cash to public charities: up to 60% of AGI (permanent).
- Appreciated assets to public charities: generally up to 30% of AGI.
- Appreciated assets to private non-operating foundations: generally up to 20% of AGI.
Excess amounts typically carry forward for up to five years (subject to ordering rules and interaction with the 0.5% floor).
4) The new 35% cap on the value of deductions (from 2026)
Beginning in 2026, itemized deductions cannot reduce your tax by more than 35% of the deduction amount. In practice, high-bracket donors (e.g., 37% marginal rate) will see the tax benefit of their deductions limited as if they were in a 35% bracket.
5) K-12 Scholarship Credit (SGO): rules, timing & planning
For tax years beginning in 2027, individuals may claim a nonrefundable federal tax credit (up to $1,700 per taxpayer/year) for cash contributions to qualifying state-approved Scholarship Granting Organizations (SGOs). The credit reduces federal tax dollar-for-dollar, but you cannot also deduct the same contribution as a charitable gift. If you receive a state credit for the same gift, the federal credit is reduced accordingly. States must opt in and certify participating SGOs.
- Who benefits most? Donors who want a direct tax credit and families seeking private-school scholarships in states that opt in.
- What counts? Cash gifts to certified SGOs; funds are then used for eligible K-12 education expenses by qualifying students.
- Coordination: No double benefit. If you claim the credit, you generally forgo a charitable deduction on that amount.
- Note on mechanics (2025 status): Some summaries differ on carryforward and any national program cap; confirm details with the IRS/state when rules finalize in 2026–2027.
6) Non-itemizers: above-the-line charitable deduction
If you take the standard deduction, OBBBA lets you still deduct up to $1,000 ($2,000 MFJ) for eligible cash gifts to public charities (but not to DAFs, supporting orgs, or private foundations). This is separate from itemizing and unaffected by the 0.5% floor.
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7) Strategy guide for 2025–2027
Before 2026
- Consider bunching gifts into 2025 (no 0.5% floor yet) or using a DAF to pre-fund multi-year giving.
- Harvest appreciated stock for charity to avoid capital gains while securing deductions (subject to 30%/20% AGI limits).
From 2026 onward
- Ensure total annual gifts clear the 0.5% floor to preserve deductibility.
- Model the 35% cap effect if you’re in a bracket above 35%.
- Keep using QCDs (age 70½+) for IRA-to-charity transfers; QCDs reduce AGI and aren’t affected by the floor.
When SGO credit begins (2027)
- In participating states, compare the $1,700 credit vs. a charitable deduction; credits are often more valuable than deductions.
- Watch for state credit offsets to the federal credit and avoid double-counting.
- Coordinate with AMT and other credits to avoid wasting a nonrefundable credit.
Recordkeeping
- Keep acknowledgment letters, contemporaneous receipts, and appraisal reports where required.
- Track carryforwards and the ordering rules (floor → AGI caps → value cap).
8) Worked examples
| Scenario | Key math | Result |
|---|---|---|
| AGI $200,000; $3,000 cash to public charities (2026+) | Floor = $1,000; Deductible portion before AGI caps = $2,000 (well under 60% cap) | $2,000 potentially deductible; tax value limited to 35% cap if applicable. |
| AGI $200,000; $65,000 appreciated stock to a public charity (2026+) | Floor = $1,000 → $64,000; 30% cap = $60,000 | $60,000 deductible now; $4,000 carryforward (subject to floor/caps in later years). |
| AGI $150,000; $1,700 SGO credit gift (2027, state participates) | Credit = $1,700 (nonrefundable). If state also gives a $1,000 credit, federal credit may be reduced. | No charitable deduction for the credited amount; compare credit vs. deduction value. |
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9) FAQs
Does the 0.5% floor replace the 60%/30%/20% AGI caps?
No. The floor applies first, then percentage caps apply to the remaining eligible amount.
Is the SGO credit better than a deduction?
Often yes, because it’s a dollar-for-dollar tax reduction. But it’s nonrefundable and coordinated with state credits; run the numbers if you have low tax liability or AMT exposure.
Can I carry forward amounts blocked by the 0.5% floor?
Carryforwards still apply to amounts limited by AGI percentage caps. For the floor itself, treatment is technical—track with your preparer alongside any multi-year planning.
Do QCDs from IRAs count toward the floor?
No—QCDs reduce AGI directly and are not itemized deductions. They remain an effective tool for donors age 70½+.
This article summarizes federal rules under the One Big Beautiful Bill Act (OBBBA) as publicly described as of August 16, 2025. Implementation details for the SGO credit and some coordination rules will be finalized by the IRS/Treasury and may vary by state participation. This is general information, not tax advice—consult your advisor for personal guidance.
