The charitable giving landscape for high-income taxpayers is undergoing significant changes beginning in 2026, due to the One Big Beautiful Bill Act (OBBBA). For philanthropically inclined individuals and their advisors, understanding these new provisions is essential to maximize both charitable impact and tax efficiency. Below is a summary of the key changes, with practical examples to illustrate the new opportunities and potential pitfalls.
Permanent 60% AGI Limit for Cash Gifts to Public Charities Starting in 2026, the ability to deduct cash contributions to public charities up to 60% of adjusted gross income (AGI) is made permanent. This is particularly advantageous for those making substantial cash gifts.
Example: If your AGI is $200,000 and you donate $120,000 in cash to a public charity in 2026, you can deduct the full $120,000 (60% of AGI) that year. Any excess can be carried forward for up to five years.
New Above-the-Line Deduction for Non-Itemizers (Effective 2026) From 2026 onward, taxpayers who do not itemize deductions may deduct up to $1,000 ($2,000 for married couples filing jointly) in cash contributions to public charities. This above-the-line deduction reduces AGI directly.
Example: A married couple taking the standard deduction donates $2,500 in cash to a local animal shelter in 2026. They can deduct $2,000 from their taxable income; the remaining $500 is not deductible.
Recordkeeping Requirements Proper documentation remains essential. For gifts under $250, a bank record or credit card statement suffices. For gifts of $250 or more, a written acknowledgment from the charity is required.
Example: A $100 donation to a food bank requires a bank statement. A $500 donation requires a written acknowledgment from the charity.
0.5% AGI Floor for Itemized Charitable Deductions (Effective 2026) Beginning in 2026, itemizers may only deduct charitable contributions to the extent they exceed 0.5% of AGI.
Example: If your AGI is $400,000, the first $2,000 (0.5% of AGI) of charitable contributions is not deductible. If you donate $5,000, only $3,000 is deductible.
35% Cap on Itemized Deductions for High-Income Taxpayers For taxpayers in the 37% bracket (taxable income above $768,701 for joint filers in 2026), the benefit of itemized deductions—including charitable contributions—is capped at 35% of the deduction amount.
Example: If you are in the 37% bracket and make a $10,000 deductible charitable gift, your tax savings is capped at $3,500 (35% of $10,000), not $3,700.
New Federal Credit for Scholarship Donations (Effective 2027) Starting in 2027, a federal tax credit of up to $1,700 ($3,400 for married couples) is available for donations to state-approved organizations providing K-12 scholarships. This credit is separate from other charitable deductions and is only available if your state participates in the program.
Example: If you donate $1,500 to a qualified scholarship granting organization and receive a $500 state tax credit, your federal credit is $1,000 ($1,500 minus $500). If you receive no state credit, you can claim the full $1,500 as a federal credit, up to the $1,700 limit.
Donor-Advised Funds (DAFs): Strategic Bunching DAFs remain a powerful tool, allowing donors to “bunch” several years’ worth of giving into one year to maximize deductions before the new 0.5% floor and 35% cap take effect. Note that contributions to DAFs do not count toward the new above-the-line deduction for non-itemizers.
Example: If you plan to give $5,000 per year for the next five years, you could contribute $25,000 to a DAF in 2025, deduct the full amount (subject to AGI limits), and then recommend grants to your favorite charities over time.
Qualified Charitable Distributions (QCDs) from IRAs Taxpayers age 70½ or older can make QCDs directly from their IRA to qualified charities, up to $108,000 per person in 2025 (indexed for inflation in later years). QCDs count toward required minimum distributions (RMDs) and are excluded from taxable income.
Example: If you are 72 and have a $20,000 RMD for 2025, you can direct $20,000 from your IRA to a public charity as a QCD. This amount is not included in your taxable income and satisfies your RMD.
Estate Planning with DAFs DAFs can be named as beneficiaries of IRAs or other assets, allowing heirs to recommend grants to charities over time and potentially reducing the taxable estate below the new estate and gift tax threshold of $15 million per individual ($30 million per couple).
Example: You name your DAF as the beneficiary of your IRA. Upon your death, the IRA balance is transferred to the DAF, avoiding income tax for your heirs. Your family can then recommend grants to charities from the DAF, creating a lasting charitable legacy.
Planning Strategies for 2026
- Bunching Contributions: Consider making several years’ worth of charitable gifts in 2025 to maximize your deduction before the 0.5% floor and 35% cap take effect.
- Timing for Non-Itemizers: If you are a non-itemizer, consider delaying small cash gifts until 2026 to take advantage of the new $1,000/$2,000 above-the-line deduction.
- Use of Appreciated Assets: Donating appreciated securities allows you to deduct the fair market value and avoid capital gains tax.
Example: You donate $10,000 of stock (with a $4,000 basis) to a public charity. You deduct $10,000 and avoid tax on the $6,000 gain.
Key Takeaways
- The OBBBA brings significant changes to charitable giving tax rules, especially for 2026 and beyond.
- High-income taxpayers should carefully plan the timing and method of their charitable gifts.
- Bunching contributions, using DAFs, and leveraging QCDs can help maximize tax benefits.
- Maintain meticulous records and stay informed about new IRS guidance as the rules evolve.
By understanding these new rules and planning ahead, you can continue to support the causes you care about while maximizing the tax benefits of your charitable giving under the OBBBA.
