The One Big Beautiful Bill (OBBB), passed in 2025, includes several sweeping changes to the U.S. tax code, many of which directly impact charitable giving strategies, particularly for taxpayers who itemize deductions. One of the most consequential changes is the introduction of a 0.5% adjusted gross income (AGI) floor on non-cash charitable contributions, which restricts the deductibility of lower-value in-kind gifts. However, an equally important and often overlooked change is the reinstatement of a cap on total itemized deductions, a provision that mirrors the spirit and structure of the former Pease limitation.

Together, these two changes represent a subtle but powerful shift: limiting not only the deductions available for certain charitable contributions but also capping the overall value of itemized deductions for higher-income earners.

The 0.5% Floor for Non-Cash Contributions

Under prior law, donors could deduct qualified non-cash gifts (such as building materials, artwork, furnishings, or equipment) up to 50% of their AGI, provided the contribution met documentation and valuation requirements.

The OBBB retains the 50% AGI limit but now introduces a floor beneath which no deduction is allowed. Specifically, the first 0.5% of AGI in non-cash charitable contributions is excluded from the deduction. This reduces the effective tax benefit of modest donations unless the taxpayer exceeds the floor in a given year.

Example:

A taxpayer with $300,000 AGI:

• 0.5% AGI = $1,500

• Donates $7,000 in used furniture with a qualified appraisal

• Only $5,500 is deductible; the first $1,500 is permanently disallowed

Critically, the amount disallowed due to the floor does not carry forward. This contrasts with excess contributions above the 50% limit, which remain eligible for carryforward up to five years under IRC §170(d).

The Return of a Cap on Total Itemized Deductions

In addition to introducing the non-cash contribution floor, the OBBB reinstates a broader limitation on total itemized deductions for high-income taxpayers. This functions similarly to the Pease limitation, which was repealed under the 2017 Tax Cuts and Jobs Act (TCJA).

Key Features of the New OBBB Itemized Deduction Cap:

• Applies to taxpayers with AGI above $500,000 (MFJ) or $400,000 (single)

• Reduces the total allowable itemized deductions by 3% of the excess AGI

• The reduction is capped at 80% of total itemized deductions, meaning at least 20% of deductions are preserved

Example:

A married couple with $700,000 AGI:

• Excess AGI above $500,000 = $200,000

• Reduction = 3% of $200,000 = $6,000

• If total itemized deductions (including mortgage interest, taxes, and charitable giving) were $30,000, their allowable deductions would be limited to $24,000 after the cap

This new cap significantly affects high-net-worth individuals who itemize, especially those with large charitable gifts, high state and local taxes, or substantial mortgage interest. It is important to note that this limitation applies to the total of all itemized deductions, not just charitable contributions.

Strategic Implications for Donors

Taxpayers seeking to optimize charitable giving in this new environment should be aware of both the non-cash contribution floor and the itemized deduction cap. Together, they create a narrower lane for deductibility, especially for donors with moderate or irregular giving patterns.

To preserve the deductibility of non-cash donations:

• Bundle donations to exceed the 0.5% AGI floor in a single tax year

• Time large gifts to occur in years when income (and thus AGI) is higher

• Consult with a CPA or tax advisor to assess whether itemizing still results in a greater benefit than taking the standard deduction

• Monitor proximity to the AGI threshold that triggers the itemized deduction cap and adjust giving strategies accordingly

The One Big Beautiful Bill has introduced significant changes to the way charitable contributions interact with the tax code. While the 50% AGI limit on non-cash contributions remains in place, the new 0.5% AGI floor reduces the value of lower-tier donations, and the reinstatement of an overall itemized deduction limitation once again penalizes high-income earners for exceeding specified income thresholds.

Together, these provisions underscore the importance of coordinated tax planning, especially for those who regularly donate valuable property or support nonprofit causes through in-kind giving. At The Green Mission Inc., we continue to help donors and their advisors maximize the financial and social return on their charitable giving—ethically, strategically, and in full compliance with evolving federal tax law.