The One Big Beautiful Bill Act (“OBBBA”) was recently signed into law by President Donald Trump. OBBBA is a U.S. federal tax bill with sweeping amendments to federal tax law. Among these amendments are changes that will impact individuals, corporations, charitable giving, and tax-exempt organizations. With the legislation now final and set to go into effect throughout the upcoming taxable year of 2026, all taxpayers should consider these potential impacts and identify any opportunities or necessities for change. Individuals and entities expected to be impacted for tax-exempt purposes include the following.
Individuals
First, OBBBA notably impacts charitable giving for individuals, which is distinguished between non-itemization and itemization. Non-itemizing taxpayers who make cash contributions to public charities are now eligible for deductions of up to $1,000, or $2,000 for married individuals filing jointly. As for itemizing taxpayers, only deductions above .5% of the individual’s adjusted gross income are permitted. With this new floor for charitable giving, individuals will generally lose disallowed amounts unless they have carryforwards, in which case the disallowed deduction will carry forward for 5 years. The overall limitation on itemized deductions has been simplified for high earners.
Further, and in line with the above, OBBBA established the permanence of the 60% adjusted gross income (“AGI”) limit for charitable giving from individuals who itemize, provided they make cash contributions to public charities. This change further enables Congressional intent to permit the calculation of the AGI limit after all other charitable contribution limitations.
From an estate planning perspective, OBBBA has increased the gift and estate tax exclusion. Effective January 1, 2026, the federal gift and estate tax exclusion will increase to $15,000,000 per individual and $30,000,000 per married couple, to be adjusted for inflation. This exclusion is “permanent” but is nevertheless subject to change or repeal by future administrations. Effective this year, the standard annual deduction increases to $25,750 for single filers, $23,625 for heads of households, and $31,500 for joint filers, with annual inflation adjustments moving forward. State-level estate and inheritance taxes still apply. The state and local tax (“SALT”) deduction cap has “permanently” increased from $10,000 to $40,000 for individual taxpayers, effective from 2025 through 2029. The generation-skipping transfer (“GST”) tax exemption will also increase to $15,000,000 per individual. The existing annual gift tax exclusion of $19,000 per recipient will remain in place but will continue to be adjusted for inflation annually. Portability elections will also remain in place, which allows a surviving spouse to use their deceased spouse’s unused estate tax exemption. The miscellaneous itemized deductions, except for the expansion of itemized deductions for educator expenses, have been permanently eliminated. Lastly, the top federal estate tax rate will remain at 40%. This is a “flat” tax for any estate exceeding the amount of estate and gift tax exemptions available to a decedent at the time of death. OBBBA introduces several other important tax changes for individuals, but those mentioned here are most relevant to estate planning and charitable giving.
Tax-exempt corporations
Perhaps most significant to large tax-exempt organizations is the new corporate giving 1% floor, which closely parallels the .5% floor for itemizing individuals. OBBBA has established this 1% floor for charitable giving by corporations in addition to the already-existing 10% ceiling, of which excess may be carried forward for 5 years. These percentages are measured against the corporation’s taxable income. In other words, this change permits corporations to claim a charitable contribution deduction only to the extent it exceeds 1% of taxable income, up to 10%.
Excess contributions and contributions disallowed by the new floor can both be carried forward for up to 5 years. However, if there is no excess contribution—meaning, if the corporation’s giving does not exceed its taxable income ceiling—there will be no carryforward of charitable contributions disallowed from the floor. Generally, corporations will permanently lose the disallowed amounts unless they include carryforwards.
Higher education
Regarding higher education, OBBBA increases the endowment excise tax on private colleges and universities that have income-producing, non-charitable-use assets exceeding $750,000 per student, ranging from 1.4% to 8%, which represents a significant adjustment. Specifically, assets between $500,000 and $750,000 will be taxed at 1.4%; $750,000 to $2 million at 4%; and $2 million or greater at 8%. Further, OBBBA requires additional reporting on Form 990 for private colleges and universities, which appears to be an increased method of monitoring endowments. Notably, the tax now applies only to private colleges and universities with at least 3,000 tuition-paying students, which is a significant increase from the previous 500-student threshold. Thus, private colleges and universities will face higher tax liability based on this tiered structure, with rates depending on the school’s per-student endowment.
Loans and federal funding will be impacted on both the undergraduate and graduate levels. The subsidized loan program for most undergraduate students, where the government pays the interest while the student is in school and for six months post-graduation, has been eliminated. Thus, effective July 1, 2026, financial aid offered to undergraduate students will be offered as unsubsidized loans, where interest will accrue immediately for undergraduate and graduate students. Additionally, the Graduate PLUS loan program will be eliminated for new graduate borrowers, beginning in the 2026-2027 academic year. For graduate and professional studies, OBBBA has imposed new limits to the amount of federal student loans available, such as master’s degree and PhD programs. Loan funding will be capped at an annual limit of $20,000 and a lifetime student limit of $100,000. For professional degree programs, such as medicine, dentistry, and law, loans will be capped at $50,000 per year with a lifetime student limit of $200,000.
The financial aid implications of OBBBA also impact Pell Grants, which help low-income students pay for college. For these funds, OBBBA has added job-training programs. Providers must be accredited and authorized to receive Title IV funds, allowing students with a bachelor’s degree to use the funds for very short-term programs specific to the Pell Grant requirements. Importantly, students with a full ride are no longer eligible for Pell Grants.
OBBBA also establishes accountability standards for student income levels after graduation by measuring the median earnings of students in individual degree programs relative to the average earnings of students with only high-school level education. If the program graduates do not earn more than those without a college degree for two out of three years post-graduation, then the program becomes ineligible for federal loans for at least two years.
K-12 education
Lastly, OBBBA has introduced a tax-credit scholarship program, which permits an individual or entity to donate money to a scholarship-granting organization (“SGO”) of up to $1,700 in cash in exchange for a one-to-one, nonrefundable tax credit. The SGO then gives scholarships to families to pay for eligible education expenses. SGOs can keep up to 10% of that money for themselves and send the rest to families to cover K-12 expenses as permitted, including, but not limited to, private- or public-school tuition, tutoring, and related academic expenses. Importantly, states may opt to participate in this program and set rules for the SGOs within their borders. In other words, states have control over whether and under what terms their state-based entities can participate.
Conclusion
Overall, OBBBA’s amendments directly impact tax-exempt organizations and charitable giving, so the question becomes: what do you do now? First and foremost, these changes are most likely to impact only certain tax-exempt organizations or individuals, specifically as they pertain to their taxable or adjusted gross income. At this time, and without further advisement from the IRS, it is best to consult your tax advisors and attorneys to best understand how these changes may impact you or your organization. Proactive planning includes reviewing your charitable giving strategies to determine the best path forward in light of these changes. For example, this could include bunching contributions into larger amounts over fewer years to yield better tax results, while still accomplishing your philanthropic mission. Alternatively, you may want to evaluate whether contributions more appropriately constitute trade or business expenses, which are deductible under Section 162. If you are an individual who regularly exceeds your annual adjusted gross income limit, you may have an opportunity for additional planning due to the reorganization of the 60% limit. If you are a wealthy, large private university, you may want to revise your investment strategies and scholarship structure. These are but a few examples of strategic maneuvering around these changes. Such action will be most effective upon review of your specific tax implications, considering your taxpayer status, charitable purpose (if any), and financial capabilities.
If you have questions regarding the implications of OBBBA, please feel free to reach out to us for further clarification or guidance by contacting Megan Grant at mgrant@nasonyeager.com.
This client alert is provided for informational purposes only and does not constitute legal, tax, or financial advice. The information contained herein is based on current legislation and is subject to change. Recipients are encouraged to consult with their tax advisors for advice specific to their individual circumstances. Nason Yeager disclaims any liability for actions taken or not taken based on the content of this alert.