First, the donor 60% AGI limitation for cash gifts to public charities, enacted with the Tax Cuts and Jobs Act, was made permanent. The new provision further explains that donors are allowed to combine cash and noncash gifts to meet the 60% AGI limitation.
There are also several new OBBBA rules that impact the deductibility of charitable contribution deductions, which affect tax-exempt organizations and donors. The new rules are as follows:
The charitable contribution deduction for individuals who do not meet the itemized deduction thresholds was reinstated by OBBBA. Individuals who do not qualify to itemize will be able to take an above-the-line charitable contribution deduction of $1,000 for single filers or $2,000 for married filing jointly. OBBBA clarifies that the deduction does not include contributions to private foundations, supporting organizations, and donor-advised funds.
Taxpayers itemizing deductions will be limited to deducting charitable contributions that exceed .5% of their adjusted gross income. Also, taxpayers in the 37% tax bracket will now have their charitable contribution deduction limited by a set calculation that includes several carve-outs.
Corporations also face a new limitation with charitable contribution deductions, which will now only be allowed to the extent the deductions are in excess of 1% of the corporation’s taxable income. It should be noted that the 10% taxable income maximum on corporate charitable contributions is still in effect.
The three provisions above will be in effect for tax years beginning after December 31, 2025.
Another new provision allows for a nonrefundable individual tax credit for contributions to a public charity classified as a Scholarship Granting Organization (SGO). An organization qualifies as an SGO if it expends at least 90% of its income on scholarships for elementary-high school students from low-income households and is included on the list of SGOs provided to the IRS by the applicable covered State. The maximum credit is $1,700 per tax year. This credit will be available in tax years ending after December 31, 2026.
It should be noted that there will be a reduction to the credit if a similar state tax credit is claimed by the individual. Many states already have state tax credits available for contributions to SGOs that are currently in effect. Any unused credits can be carried forward for five years.
The current rules require executive compensation excise taxes to be paid on the top five current and former employees of an “applicable tax-exempt organization” (ATEO) compensated more than $1 million and in designated severance payouts during the calendar year. In general, the excise tax rate is 21% of the amount in excess of the threshold limits and is assessed to the ATEO. For tax years beginning after December 31, 2025, the rules have been expanded. The new requirements cover all current and former employees compensated more than $1 million and designated severance payouts in a calendar year beginning after December 31, 2016.
Pursuant to the drafted language in OBBBA, related entities of the ATEOs should also be included in the compensation calculations. However, it appears the definition of “applicable tax-exempt organization” was not changed in the provision.
Forms 1099 return threshold reporting requirements for designated payments of $600 or more made by not-for-profit organizations (in addition to for-profit trades and businesses) has been increased to $2,000 or more and should be increased annually for inflation. The change applies to payments made after December 31, 2025.
The Inflation Reduction Act (2022) included certain clean energy tax credits, the most common of which are for wind and solar projects, which many not-for-profit organizations have claimed or are in the process of filing related refund claims. OBBBA has accelerated the winding down of the tax credits for solar and wind projects. Projects beginning after June 30, 2026, and placed in service after December 31, 2027, will no longer be eligible for the credits. There are many nuances to and numerous other clean energy credit programs that have been impacted by OBBBA.
The existing rules tax the net investment income at a flat rate of 1.4% of private colleges and universities that have in excess of 500 tuition-paying students and student-adjusted endowment assets above $500,000 per student.
The OBBBA updates the rules to apply to private colleges and universities with more than 3,000 tuition-paying students, which will be subject to a tiered excise tax as follows:
It should be noted that the increased number of tuition-paying students required could significantly decrease the number of colleges and universities that are required to pay the tax. A private college or university would have to have at least $1.5 billion in their endowment ($500,000 x 3,000 students) before this additional excise tax would be applicable.
In addition, net investment income has historically included interest, dividends, rents, royalties, and capital gains. Under OBBBA, interest from student loans and federally subsidized royalty income from intellectual property developed with federal funds should also be included as net investment income.
Further, under OBBBA, private colleges and universities will need to report the number of tuition-paying students and full-time students to the U.S. Department of Treasury. There should be further guidance issued on how these amounts are to be calculated and communicated; other definitions and changes may be addressed in the guidance.
The following are areas that were proposed during the legislative process that could have impacted tax-exempt organizations but were not included in the final version of OBBBA:
Please do not hesitate to reach out to your RubinBrown team to discuss how the OBBBA impacts your tax-exempt organization.
Published: 08/11/2025
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