A 'new adventure' for charitable giving, itemizing under OBBBA

Core Insights - The One Big Beautiful Bill Act (OBBBA) introduces changes to charitable deductions that will affect both itemizers and non-itemizers differently, with a focus on income levels and whether households itemize deductions [1][4][9] - Starting in 2026, middle-class donors will benefit from a permanent "above-the-line" deduction for non-itemizers, which will provide $1,000 for individuals and $2,000 for couples filing jointly, enhancing their tax savings [2][10] - The new legislation includes a federal tax credit for contributions to scholarship-granting organizations, which will be available to all taxpayers and could incentivize charitable giving in education [10][11] Summary by Sections Charitable Deductions - The OBBBA will reduce some tax deductions for wealthy itemizers, while also providing new avenues for charitable donations that could influence long-term planning [4][5] - Non-itemizers previously had temporary deductions of up to $300 for individuals and $600 for couples, which will be replaced by the new permanent deduction starting in 2026 [1][2] Impact on Wealthy Donors - Wealthy individuals may reconsider their charitable giving strategies due to the clarity provided by the new law, which could influence the amount they leave to charity [3][15] - The law introduces new limits on charitable deductions for itemizers, including a 0.5% floor on modified adjusted gross income and a reduction of two percentage points for top income bracket deductions [7][12] Planning Strategies - Financial advisors are likely to see increased inquiries from wealthy clients about accelerating charitable donations before the end of the year, particularly in light of the new rules [5][13] - The concept of "bunching" contributions into specific years may become a common strategy to optimize tax benefits under the new regulations [9][13] Educational Contributions - The new federal tax credit for contributions to scholarship-granting organizations, starting in 2027, will provide up to $1,700 per taxpayer, which is a unique incentive in the realm of charitable giving [10][11] - This credit is designed to encourage more school choice and will be capped at $10 billion in total federal benefits [11][12] Long-term Considerations - While the changes are not considered revolutionary, they prompt a reevaluation of philanthropic strategies among clients, particularly regarding the timing of donations [15][16] - Advisors are encouraged to integrate charitable giving into clients' overall financial plans to avoid unintended consequences [16]