Above-the-Line Charitable Deduction

What is an Above-the-Line Charitable Deduction?

An above-the-line charitable deduction is a special tax benefit that allows certain taxpayers to claim a limited deduction for charitable contributions even if they do not itemize deductions on their tax return. Traditionally, charitable contributions were only deductible if a taxpayer itemized on Schedule A.

However, under the One Big Beautiful Bill Act (OBBBA), beginning in tax year 2026, taxpayers may deduct up to $1,000 ($2,000 for married couples filing jointly) in cash contributions to qualified public charities (excluding donor-advised funds, supporting organizations, and private nonoperating foundations) without itemizing.

While commonly described as “above the line,” this deduction under OBBBA does not reduce adjusted gross income (AGI). Instead, it reduces taxable income after AGI is calculated, functioning like a universal charitable deduction for non-itemizers.

Eligibility Criteria for Above‑the‑Line Charitable Deductions

To claim an above-the-line charitable deduction, several criteria must be met:

• Type of Contribution: Only cash contributions qualify. Non-cash gifts such as property, securities, or other assets are not eligible.
• Recipient Organization:
   Contributions must be made to a qualified public charity under IRC § 170(b)(1)(A). Donations to donor-advised funds, supporting organizations, or private nonoperating foundations are excluded.
• Filing Status and Limits:

Single filers may deduct up to $1,000 while married couples filing jointly may deduct up to $2,000.

• Standard Deduction Requirement:
   Taxpayers must be claiming the standard deduction. Itemizers cannot take this deduction for the same contributions.
• Documentation:
  A valid bank record or written acknowledgment from the charity is required, showing the amount, date, and confirmation that no goods or services were received in return.

Tax Advantages Compared with Itemized Deductions

The new above the line tax deduction under OBBBA offers several advantages compared with traditional itemized charitable deductions:

• Universal Availability: Taxpayers can benefit even if they do not itemize, making charitable giving more accessible to those who claim the standard deduction.
• Accessibility: Unlike itemized deductions, which may be limited by the new 0.5% AGI floor starting in 2026, this deduction provides an immediate benefit for the first $1,000 ($2,000 for joint filers) of eligible cash contributions.
• Simplicity: Claiming the deduction is straightforward and does not require the extensive recordkeeping associated with itemizing deductions.

How It Affects Adjusted Gross Income (AGI) and Tax Planning

Above the line deductions, directly reduce a taxpayer’s AGI. Lowering AGI can have a ripple effect on tax planning:

• Eligibility for Credits and Deductions: Many tax credits and deductions (such as the Child Tax Credit, education credits, and medical expense deductions) are phased out at higher AGI levels. Reducing AGI through above-the-line deductions can help taxpayers qualify for these benefits.
• State Taxes: Some states use federal AGI as the starting point for calculating state income tax, so reducing AGI can also lower state tax liability.
• Other Deductions: Because some below-the-line deductions are limited by AGI (e.g., medical expenses must exceed 7.5% of AGI), reducing AGI can increase the amount of these deductions.
• Tax Bracket Management: Lower AGI may keep a taxpayer in a lower tax bracket, reducing overall tax liability.

FAQ

Can above-the-line deductions affect below-the-line deductions?

Yes. Above the line tax deductions reduce AGI, which is the starting point for calculating many below-the-line deductions and credits. For example, medical expense deductions are only allowed for expenses exceeding 7.5% of AGI, so a lower AGI increases the deductible amount.

Are charitable donations included among above-the-line deductions?

Yes, starting in tax year 2026 based on OBBBA, certain cash contributions to qualified public charities (excluding donor-advised funds or private foundations) may be deducted above the line (i.e. without itemizing). The limit is $1,000 for single filers or $2,000 for married filing jointly. However, this deduction does not reduce one’s AGI; it reduces taxable income.

Who qualifies for above-the-line charitable deduction?

Any taxpayer who claims the standard deduction and makes a cash contribution to a qualified charity (excluding donor-advised funds and supporting organizations) is eligible, subject to the annual dollar limits. Both single and joint filers can claim this deduction.

How does this deduction impact AGI and eligibility for other credits?

The above line deductions reduce AGI, which can help taxpayers qualify for other tax credits and deductions that are phased out at higher AGI levels. This can result in additional tax savings beyond the deduction itself.

Is there a limit on above-the-line charitable deduction amounts?

Yes. For tax years after 2025, the deduction is limited to $1,000 for single filers and $2,000 for joint filers. Contributions above these amounts may only be deducted if the taxpayer itemizes deductions.

How BT Can Help

For more than four decades, Bennett Thrasher has provided businesses and individuals with strategic business guidance and solutions through professional tax, audit, advisory, and business process outsourcing services. Contact Alana Mueller, partner in charge of Bennett Thrasher’s nonprofit accounting practice, or call us at 770.396.2200.