New Rules for Charitable Deductions
- A new charitable deduction for nonitemizers. Beginning in 2026, nonitemizers can deduct up to $1,000 ($2,000 for joint filers) for cash contributions to qualified public charities (excluding donor-advised funds, supporting organizations, and private foundations). Since approximately 90% of taxpayers don’t itemize, this is a nice reward for those who make small but meaningful gifts. The deduction reduces taxable income, offering a meaningful benefit in addition to the standard deduction.
- A new floor for charitable deductions. Beginning in 2026, itemizers will only be allowed to deduct contributions that exceed 0.5% of adjusted gross income (AGI). For example, someone with AGI of $200,000 would need to give more than $1,000 before being able to claim any deduction. Carryover of excess amounts will be allowed only if the 0.5% threshold is met.
- Deduction limit for charitable gifts of cash. The temporary 60%-of-AGI limit for cash gifts to qualified charities is now permanent.
- Itemized deduction limit for top earners. Starting in 2026, those in the top 37% tax bracket (less than 1% of all taxpayers) will have their deductions limited to 35% — including deductions for charitable gifts.
- A new senior deduction. For 2025–2028, taxpayers age 65 or older can take an additional $6,000 above-the-line deduction. While this isn’t technically a change to charitable deductions, for many seniors, it may free up additional funds to meet charitable goals. The deduction phases out when the individual reaches specified income limits. In the case of joint filers, only one spouse needs to be 65 or older to claim the deduction. If both spouses are 65 or older, their deductions are reduced simultaneously by the phaseout.
The Impact on Top-Bracket Giving
The new charitable giving rules under the OBBBA could significantly reduce tax savings for high-income taxpayers. For example, let’s say a couple in the 37% tax bracket with $850,000 in AGI donates $85,000 to charity in 2025. Their deduction will save them $31,450 in taxes. However, if they make the same gift in 2026, the combined impact of the 0.5%-of-AGI floor and the 35% deduction cap would reduce their tax savings to $28,263 — a difference of $3,187.
Higher-income clients may want to consider bunching gifts in 2025 (discussed below) to maximize current tax advantages before the stricter limits become effective.
Strategies for Tax-Efficient Giving
With the OBBBA permanently increasing the standard deduction, fewer people will itemize to take charitable deductions. It’s more important than ever to explore strategic giving methods that will maximize impact and align with a donor’s financial and philanthropic objectives. Consider the following simple approaches to help maximize tax-efficient giving opportunities without the complexity associated with trusts or other more sophisticated charitable giving strategies.
- Gift acceleration. Donors who are planning large charitable gifts may want to give in 2025 to avoid having their deduction limited under the new rules.
- Gift bunching. The OBBBA permanently extends the higher standard deduction and includes a small increase for 2025 — $15,750 (single filers or married filing separately), $23,625 (head of household), and $31,500 (joint filers). Many taxpayers have already shifted from itemizing to taking the standard deduction, and some have begun “bunching” two or more years’ worth of charitable contributions into one tax year to make itemizing worthwhile. For instance, a donor who typically gives $12,000 annually could contribute $36,000 in 2025, claim the itemized deduction, then take the standard deduction in the following two years before making another gift. This strategy may become even more useful starting in 2026 since it could allow some donors to surpass the new 0.5%-of-AGI floor.
- Donor-advised funds (DAFs). DAFs remain a versatile option for taxpayers who want to make a large charitable contribution during a high-income year, qualify for an immediate income tax deduction, and then recommend grants to charities over time. Donors concerned about the new giving floor or the cap on deductions (for those in the 37% tax bracket) might want to explore the idea of making a larger gift to a DAF in 2025, reaping the full tax benefits, then recommending grants over the next few years equivalent to their usual annual gifts. This can be particularly useful for donors who are planning multiyear gifts.
- Qualified charitable distributions (QCDs). IRA owners age 70½ and older can continue to use QCDs to donate directly from their IRAs. These gifts are not deductible, so they are not impacted by the new giving floor or limitations on deductions. Instead, they are tax-free distributions that count toward the donor’s required minimum distribution (RMD) if one is due. For example, a 75-year-old could make a QCD from an IRA, pay no tax on the distribution, satisfy their RMD, and preserve eligibility for the new senior deduction.
- Opportunities for nonitemizers. If bunching gifts is not feasible or desirable, donors can take advantage of the new deduction for nonitemizers.
- Strategic noncash donations. Once the new limitations on deductions are in place, gift options that offer substantial tax advantages may become even more popular. Gifts of appreciated stock or real estate let the donor bypass the capital gains tax, potentially making up for the limited charitable deduction (starting in 2026).
- Legacy gifts. While bequests and charitable beneficiary designations don’t offer any income tax advantages, they also aren’t impacted by the new deduction limitations. Some donors may find these to be easy, powerful, and lasting alternatives to annual gifts.
Winning Strategies Under the OBBBA
Donors and financial professionals must adapt to the new landscape created by the OBBBA. The new legislation introduces both opportunities and complexities — along with a short window in 2025 when acting quickly may offer some donors distinct advantages.
