Could the 2025 budget reconciliation bill impact your giving?

On July 4, 2025, President Donald Trump signed into law the One Big Beautiful Bill Act (OBBBA). While the focus of the law is on extending the expiring provisions of the Tax Cuts and Jobs Act and adjusting federal spending, some of its provisions also address charitable giving. 

Donor-advised funds are not directly named or impacted in the legislation. 

Vanguard Charitable supports efforts that incentive giving and preserve the integrity and accessibility of donor-advised funds. We remain committed to promoting effective philanthropy by ensuring donor flexibility, transparency, and compliance are upheld as central principles of the charitable giving process. 

Below is an overview of the forthcoming changes for donors to consider. 

Please note, we recommend you consult with a tax advisor for more information on individual circumstances. 

New floor for those who itemize deductions and corporations

For taxpayers who itemize, the new law introduces a 0.5% floor on charitable deductions. This means, the first 0.5% of a taxpayer’s adjusted gross income (AGI) in charitable contributions is not deductible. 

For example, someone with $200,000 in AGI would not be able to deduct the first $1,000 of their charitable donations. This provision may encourage donors to bundle their giving during high-income years to maximize deductibility. 

For those looking to bundle their giving in 2025 but are unsure of which charities they want to give to, a donor-advised fund (DAF) is an ideal giving vehicle. Donors can receive an immediate tax deduction when they give to their DAF account. Then, once they have a philanthropic plan in place, they can recommend grants from the DAF to charities around the world. Additionally, under the new law, corporations can only deduct charitable contributions if they exceed 1% of taxable income, with a cap set at 10%. 

Both floors apply to taxable years beginning after December 31, 2025.

New cap on giving—for some 

For most Americans who itemize, the deduction limit will remain the same: 60% of AGI for most contributions, 30% of AGI for long-term capital gain property. 

However, the OBBBA set a new cap for the top tax bracket, limiting the value of itemized deductions, including the charitable deduction, to $0.35 per dollar. This is a decrease from the former $0.37 per dollar limit.

Estate tax exemption increase 

The estate and lifetime gift tax exemption has been permanently increased to $15 million per individual, $30 million for those filing jointly, applying to estates of decedents dying and gifts made after December 31, 2025. The exemption amount is indexed to inflation. 

Charitable bequests remain fully deductible and continue to be a powerful tool for legacy planning and reducing taxable estates. However, the higher estate tax exemption may incentivize fewer individuals to give to charity at end of life to reduce taxes on estates.

Universal charitable deduction 

The new law will allow a permanent universal charitable deduction of $1,000 for individuals and $2,000 for joint filers for taxable years after December 31, 2025. This deduction is available to all taxpayers that do not itemize their deductions. This change is expected to broaden participation in charitable giving, especially among middle-income households. 

Now, donors don’t need to choose between itemizing or taking the standard deduction to claim a charitable deduction. They can benefit from the standard tax deduction while still seeing the direct tax benefits of giving to charity. 

It’s important to note that any giving to private foundations or DAFs will not qualify for the universal charitable deduction. 

Excise tax on certain private colleges and universities 

The OBBBA increases the endowment tax originally enacted by the 2017 Tax Cuts and Jobs Act. 

While certain private colleges or universities with a student adjusted endowment of $500,000 to $749,999 will keep the current tax rate of 1.4% on net investment income, certain institutions with larger student adjusted endowments will see rate increases. 

• Institutions with a student adjusted endowment of $750,000 to $1,999,999: 4%
• Institutions with a student adjusted endowment of $2 million or more: 8%

Impact on charitable giving to nonprofits 

Nonprofit organizations are responding to the new law, with some suggesting that though the universal charitable deduction may encourage small donations, the higher threshold for itemized deductions and a weaker estate tax could discourage major donors and corporations from giving at previous levels. 

Donors who give with a donor-advised fund are primed to continue giving because the dollars in the funds are already earmarked for charitable giving. Vanguard Charitable donors not only rise to the occasion when the unexpected strikes, but also sustain recurring granting to their favorite charities. 

As taxpayers and charities adjust to the new tax law, strategic donors should stay focused on the many benefits of charitable giving.