New for 2026: Four OBBBA Provisions That Change Your Return This Year
The 0.5% charitable floor, the cap on itemized deduction benefits, the non-itemizer charitable deduction, and the $400 Section 199A minimum all apply for the first time on 2026 returns. Here is what each one does and how it changes year-end planning.
Most of the One Big Beautiful Bill Act (P.L. 119-21) showed up on 2025 returns: the bigger standard deduction, the $2,200 child tax credit, the senior deduction, and the tips and overtime deductions. We covered those in our earlier post.
Four provisions were written to start a year later, for tax years beginning after December 31, 2025. They are on the 2026 return you will file next spring, and two of them change how you should think about charitable giving before December 31. Here is each one, with the Code section, and what it means for Indiana and Kentucky filers.
1. A 0.5% of AGI floor on itemized charitable deductions
IRC 170(b)(1)(I)
If you itemize, your charitable contributions for 2026 are deductible only to the extent they exceed 0.5% of your contribution base, which for most people is adjusted gross income. The first half-percent of AGI in gifts produces no deduction.
Example: AGI of $120,000 and $5,000 of cash gifts to your church. The floor is $600 (0.5% of $120,000), so the deduction is $4,400, not $5,000. With $600 or less in gifts, the deduction is zero.
Three details worth knowing:
- For most donors, the amount blocked by the floor is simply lost. It does not carry forward on its own. Under IRC 170(d)(1), as amended, floor-disallowed amounts carry forward only in a year when your gifts also exceed the percentage-of-AGI ceilings (for example, the 60% limit for cash gifts to public charities). Most donors never reach those ceilings, so the floor is a permanent cost for them.
- Whether carryovers from 2025 and earlier are subject to the floor is unsettled. The floor applies to tax years beginning after 2025, and the IRS has not yet issued guidance on how it interacts with carryovers from a large 2024 or 2025 gift. Practitioners currently read the statute differently, so if you have a pre-2026 carryover, we will apply the IRS position once it is published.
- Corporations got the same treatment. IRC 170(b)(2)(A) now allows a corporate charitable deduction only to the extent contributions exceed 1% of taxable income, with the existing 10% ceiling still on top.
The 60% of AGI limit for cash gifts to public charities (IRC 170(b)(1)(G)) was made permanent by the same law, so the ceiling did not move. Only the floor is new.
2. A cap on the benefit of itemized deductions for top-bracket taxpayers
IRC 68, rewritten
The old “Pease” limitation on itemized deductions had been suspended since 2018 and was scheduled to come back in 2026. Instead, Congress replaced it with a narrower rule that reaches only taxpayers in the 37% bracket.
For 2026, total itemized deductions are reduced by 2/37 (about 5.4%) of the lesser of:
- your total itemized deductions, or
- the amount by which your taxable income, figured before this reduction and with your itemized deductions added back, exceeds the point where the 37% bracket begins: $640,600 for single filers, $768,700 for married filing jointly, and $384,350 for married filing separately (Rev. Proc. 2025-32).
The arithmetic is designed so that a dollar of itemized deductions saves a top-bracket taxpayer at most 35 cents instead of 37 cents. If your income is below the 37% threshold, this section does nothing to you.
Example: A married couple with $900,000 of taxable income before itemized deductions and $60,000 of itemized deductions. The excess over $768,700 is $131,300, which is more than $60,000, so the reduction is 2/37 of $60,000, or $3,243. They deduct $56,757.
Two things this rule does not do: it does not touch the standard deduction, and it does not touch the Section 199A deduction, which is computed separately and is not an itemized deduction.
3. A charitable deduction for people who do not itemize
IRC 170(p)
Roughly nine out of ten taxpayers take the standard deduction, and since 2018 that has meant no federal tax benefit for their giving. Starting with 2026, a non-itemizer can deduct up to $1,000 of charitable contributions ($2,000 on a joint return) in addition to the standard deduction.
The limits on this one are tight, and they are where mistakes will happen:
- Cash only. Checks, cards, and electronic payments count. Donated clothing, household goods, vehicles, and appreciated stock do not.
- Public charities only, with two exclusions. Gifts to donor-advised funds (IRC 4966(d)(2)) and to supporting organizations (IRC 509(a)(3)) do not qualify, even though both are public charities for other purposes.
- You need substantiation. The normal rules in IRC 170(f)(8) apply: a written acknowledgment from the charity for any single gift of $250 or more, and a bank record or receipt for smaller gifts.
- You cannot take both. If you itemize, your charitable gifts go on Schedule A (subject to the new 0.5% floor above) and you do not also get the 170(p) deduction.
For a married couple in the 22% bracket, the full $2,000 deduction is worth $440 of federal tax.
4. A $400 minimum Section 199A deduction for active businesses
IRC 199A(i)
The 20% qualified business income deduction was made permanent, and for 2026 it gained a floor. If you have at least $1,000 of qualified business income from a trade or business in which you materially participate (using the material participation tests of IRC 469(h)), your Section 199A deduction is the greater of the amount you would otherwise compute or $400.
Who this actually helps: someone with a small Schedule C, a side business, or a farm whose computed deduction comes out under $400. A $1,500 profit from weekend work would normally produce a QBI deduction of about $300; for 2026 it produces $400. A passive investor in a partnership or an S corporation who does not materially participate does not qualify for the minimum, though the regular computation still applies.
Both the $400 and the $1,000 threshold are indexed for inflation for tax years beginning after 2026, in $5 increments.
What this means for year-end giving
The charitable floor changes the standard advice for anyone who gives regularly.
If you itemize, bunching now saves more than it used to. The floor is applied every year, so spreading $6,000 of gifts over three years costs you the floor three times. Giving all three years’ worth in one year costs it once. A donor-advised fund is the usual tool for this: you fund it in one year, deduct that year, and grant from it to your church or charity over the following years. The DAF exclusion in the non-itemizer deduction does not apply to itemizers.
If you are 70½ or older, a qualified charitable distribution beats both rules. A QCD from your IRA directly to a charity (IRC 408(d)(8), up to $111,000 for 2026 per Notice 2025-67) is excluded from income entirely. It never touches the floor, it does not need to be itemized, it counts toward your required minimum distribution, and it lowers the income used to figure your Medicare premiums and the taxability of your Social Security.
If you take the standard deduction, the new $1,000 / $2,000 deduction is a reason to give by cash or check rather than goods this year, and to give directly to the charity rather than through a donor-advised fund.
If you are near the itemizing line, the answer depends on the interaction of the floor, the SALT cap ($40,400 for 2026, phasing down above $505,000 of modified AGI), and your mortgage interest. That is a calculation, not a rule of thumb, and it is worth running before December.
A note on Indiana and Kentucky
Both states start from federal adjusted gross income, and none of the four provisions above changes AGI, so none of them flows through to your Indiana or Kentucky return automatically. Indiana’s individual rate is a flat 2.95% for 2026, with county tax on top, and Indiana has no itemized deductions. Kentucky’s rate is a flat 3.5% for 2026, and Kentucky has its own itemized deduction schedule with its own rules. We will confirm each state’s treatment of the 2026 changes as the state forms and instructions are released this fall.
Talk to us before December 31
Most of what is in this post can be planned around, but only before the year ends. If you give regularly, own a small business, or expect to be in the 37% bracket, schedule a planning conversation this fall and we will run the numbers on your 2026 return while there is still time to make changes.
Note: This post provides general information about federal tax law changes and should not be considered personalized tax advice. Dollar figures for 2026 are from Rev. Proc. 2025-32, except the QCD limit (Notice 2025-67) and the SALT cap, which is set by statute (IRC 164(b)(7)). Information is current as of October 2026 and is subject to further IRS guidance.