09/17/2025

Congress Imposes 1% Floor on Corporate Charitable Deductions

The One Big Beautiful Bill Act (OBBBA) impacted a number of provisions to the Internal Revenue Code — from federal estate, gift and generation-skipping transfer taxes to renewable energy credits and opportunity zones. 

A relatively small provision in the OBBBA with a big impact was an amendment to Code Section 170 that imposes a 1% floor on corporate charitable deductions. The OBBBA kept in place the 10% ceiling.

Beginning January 1, 2026, a corporate taxpayer may claim a charitable deduction under Code Section 170 only if the charitable contribution exceeds 1% of the taxpayer’s taxable income and does not exceed 10% of their taxable income. 

For example, if a corporate taxpayer has $1 million of taxable income, the 1% floor would be $10,000 and the 10% ceiling would be $100,000.

  • If contributions are less than $10,000, none of the contributions would be deductible (under the 1% floor)

  •  If contributions are $30,000, then only $20,000 would be deductible ($30,000 minus $10,000 floor)

  • If contributions are $150,000, then only $100,000 would be deductible (capped by the 10% ceiling)

Additionally, the OBBBA amended the carryforward rules for disallowed charitable contributions below the 1% floor and above the 10% ceiling. Disallowed charitable contributions above the 10% ceiling may be carried forward to the succeeding taxable year.

However, disallowed charitable contributions below the 1% floor may only be carried forward to the succeeding taxable year when the 10% ceiling was exceeded. We note that while the statute is silent, we expect the disallowed charitable contributions below the 1% floor to disappear where the ceiling is not exceeded. 

Finally, disallowed charitable contributions may only be carried forward for five years, applied on a first-in, first-out basis. 

For additional information about how the recent tax legislation may impact your tax planning strategy, please contact Pierce Atwood tax attorneys Rob Ravenelle or Allen Braddock, or trusts and estates attorney Griffin Leschefske.