KPMG article: 1% floor on charitable deductions may erode NOL carryovers

A restriction on corporate charitable contribution deductions buried in Pub. L. No. 119-21 (the “One Big, Beautiful Bill Act” (OBBBA)) may reduce net operating loss (NOL) carryovers for C corporations, in addition to permanently disallowing some (or even all) of many corporations’ deductions for charitable contributions—a double negative result that compounds the cost of OBBBA’s 1% floor.

OBBBA amended section 170(b)(2)(A) to impose a 1% floor on corporate charitable contribution deductions, effective for tax years beginning after December 31, 2025. Under the new provision, a corporation may deduct charitable contributions only to the extent the aggregate of such contributions exceeds 1% of taxable income (as defined in section 170(b)(2)(D)) and do not exceed 10% of taxable income (the longstanding “10% limit”). Despite its apparent simplicity, the 1% floor can, in certain instances, reduce available NOL carryovers by more than the NOL deduction actually used in computing taxable income. For many corporations, this NOL reduction will be accompanied by the permanent disallowance of charitable contribution deductions—consequences that make careful tax planning essential for affected corporations.

Read a September 2026 article* prepared by KPMG LLP tax professionals that provides:

• An overview of the law’s 1% floor
• How the 1% floor interacts with the 80% limit on certain NOL carryovers
• A review of the mechanical application of the NOL carryover rules of section 172(b)(2)
• How the advent of the 1% floor may cause some C corporations to observe an unanticipated reduction to an NOL carryover

*Reproduced with permission from Tax Management Memorandum, Sept. 2, 2026. Copyright ® 2026 by Bloomberg Industry Group, Inc. (800-372-1033) http://www.bloombergindustry.com