Our perspective

Because of changes introduced by the One Big Beautiful Bill Act (OBBBA) and revisions to how charitable deductions are calculated, clients in the highest marginal tax bracket who itemize should consider accelerating their charitable donations in the 2025 calendar year to take advantage of current, more favorable rules before they expire.

Text of the OBBBA is available here: https://www.congress.gov/ bill/119th-congress/housebill/1/text. We include the relevant section in parentheses where appropriate.

What has changed

OBBBA implements several notable changes to the rules governing charitable deductions that impact ultra-high net worth individuals who itemize deductions. The two most significant provisions are: 

• 5% adjusted gross income (AGI) threshold for itemized charitable deductions. Beginning in 2026, individuals who itemize deductions will only be permitted to deduct charitable contributions to the extent that such contributions exceed 0.5% of their AGI (402(c)). For example, a taxpayer with an AGI of $100,000 would be allowed to deduct only the portion of their charitable contributions that exceeds $500.
• 35% cap on itemized deductions for top-bracket taxpayers. Under the new legislation, the tax benefit of itemized deductions, including charitable contributions for individuals in the highest income bracket, is limited to 35%, regardless of their actual marginal tax rate of 37% (403(d)). This provision effectively diminishes the after-tax value of charitable contributions for high-income earners.

An example

Consider a taxpayer with an AGI of $1,000,000 who intends to make a charitable contribution of $100,000. Assuming no other influencing factors, we illustrate the impact of changes under the OBBBA: 

Under current law (2025):  Assuming the taxpayer itemizes deductions and is in the 37% federal marginal income tax bracket, the full $100,000 charitable contribution is deductible (subject to AGI limits that aren’t exceeded in this case). This would yield federal tax savings of approximately $37,000:

• $100,000 contribution × 37% marginal tax rate = $37,000 tax savings

Under OBBBA (effective 2026): Beginning in 2026, the OBBBA introduces several limitations that materially reduce the value of this same contribution:

1. 0.5% AGI Floor: The first 0.5% of AGI (in this case, $5,000) is not deductible. Only the portion of the contribution exceeding $5,000 is eligible for a deduction.

• $100,000 contribution – $5,000 AGI floor = $95,000 deductible

2. 35% Deduction Cap: Although the taxpayer is in the 37% bracket, the value of the deduction is limited to a 35% tax benefit.

• $95,000 deductible × 35% cap = $33,250 tax savings

Comparison of Outcomes

This simplified example highlights the reduced effective tax savings of charitable giving under the new rules. By accelerating planned contributions into the 2025 tax year, high-income taxpayers may preserve greater deductibility and receive more favorable tax treatment for their philanthropy.

Next steps

We encourage clients with philanthropic intentions and near- to mid-term charitable giving plans to consult their Pathstone advisor to review their individual goals and circumstances. This discussion can help identify strategic, actionable steps to optimize the benefits of current tax provisions before they expire — serving as a meaningful component of a thoughtfully designed and purpose-driven life.