Charitable Deduction Changes in 2026: What You Need to Know Before Year-End

Effective January 1, 2026, the One Big Beautiful Bill Act (OBBBA), which passed on July 4, 2025, significantly impacts the income-tax deductibility of charitable contributions.  

The income tax laws will change in several ways:

Two positive changes:

1. Starting January 1, 2026, there is a new $1,000 deduction ($2,000 if married filing jointly) for non-itemizing taxpayers for cash contributions to qualifying charities. This is a new development, as non-itemizers were not allowed to deduct any charitable donations in the past.
2. For taxpayers who itemize, the existing 60% of Adjusted Gross Income (AGI) cap for cash contributions to qualifying charities has been extended permanently.  Before the Tax Cuts and Jobs Act (TCJA) of 2017, the cap had been 50% of AGI. The TCJA increased the deduction cap to 60%, and the OBBBA permanently extends that 60% of AGI limit.

Two negative changes:

1. 1. Beginning on January 1, 2026, there is a new 0.5% of Adjusted Gross Income (AGI) floor on the ability to deduct contributions to charity.
2. 2. Also beginning on January 1, 2026, there is a 2/37ths limit on all itemized deductions, which does not exclusively impact charitable giving but clearly will have an impact for some donors.

Impact for those who Itemize Deductions on their 1040s:

For clients who itemize deductions, the time to act may be now.  With the law set to change in a way that negatively affects charitable deductions starting January 1 of next year, clients still have a little time to implement a charitable strategy. Still, there should be a sense of urgency, as the benefits of charitable giving will be reduced for donors after the new year. They will not be entitled to deduct charitable donations in excess of 0.5% of AGI.  

For someone with $1,000,000 in AGI, the first $5,000 of charitable contributions will not be deductible. For someone with $5,000,000 in AGI, the figure applies to the first $25,000 of contributions. Furthermore, contributions to charity that are disallowed in a given tax year can only be carried forward if the 0.5% floor has been exceeded.  If the floor is $5,000 (based on AGI of $1,000,000), and the taxpayer’s total charitable donations were $4,000, there would be no carryforward.      

There is a new 35% rate limit, or cap, on all deductions, including charitable deductions. Essentially, itemizing taxpayers in the 37% bracket will now be able to deduct only about 35/37ths of their deductions (about 94.6%). In comparison, about 2/37ths will be limited or phased out (about 5.4% of the deductions will be lost). 

Taken together, for itemizers who make charitable deductions, the 0.5% floor applies first, followed by the 2/37% haircut, further limiting the benefits of the charitable donation. 

The takeaway for itemizing taxpayers who make charitable gifts is to act quickly to increase the charitable contribution deductions available in 2025, at least up to the 60% of AGI cap. Often, one may hear the term “bunching” applied to making a single set of larger donations in one year instead of spreading the same donations over multiple years. Bunching charitable gifts in 2025 certainly seems like a good plan.  If a $1,000,000 AGI earner plans to give $5,000 per year (or more for that matter) to charity for the next 20 years, certainly bunching that into a larger gift (maybe to a donor-advised fund) in 2025 will pay tax dividends. 

Indeed, it might be even better to donate appreciated securities to a donor-advised fund to take a deduction at the full fair market value, while avoiding the never-recognized capital gains and gaining a deduction that’s neither reduced by the new 0.5% floor nor the new 2/37ths deduction cap.

Impact for non-itemizers: 

It is estimated that since the TCJA of 2017, the percentage of taxpayers taking the standard deduction (so-called non-itemizers) nearly doubled to approximately 90% of all filers. Therefore, the new $1,000/$2,000 deduction for cash gifts to certain qualified charities (per Sec 170(b)(1)(A) of the Code) offers some benefit and relief to those who don’t itemize. 

The relief is obviously limited in a few ways, however. Specifically, the deduction is limited as follows: (i) in amount ($1,000/$2,000), (ii) in the type of property, as it is only available for cash gifts, and the deduction is not available for non-cash contributions (like marketable securities or real estate), and (iii) in the type of charity that qualifies, as the new provision excludes gifts to a Donor Advised Fund (DAF), support organization or most charitable remainder trusts.

The obvious takeaway for non-itemizers is to wait to make cash gifts (at least the $ 1,000 or $2,000 cash gifts that non-itemizers can deduct) to public charities until next year.  Relatedly, it won’t matter for non-itemizers whether they give non-cash gifts to charity this year or next, or make donations to DAFs this year or next, because the new laws will not change the non-deductibility of such gifts.

Conclusion:

In the end, making charitable gifts will still have tax benefits for most and may offer new benefits for some who didn’t benefit in the past (non-itemizers who took the standard deduction). Further, there are many reasons beyond tax deductions to encourage charitable giving. However, the significant changes pending January 1 should prompt many clients to consider large gifts to charities (or to their private foundations or donor-advised funds) before the end of 2025, preferably with appreciated securities. Before you make charitable gifts expecting a certain income tax result, please be sure to address any charitable planning with your income tax return preparers and advisors.  They may need to look at your AGI, contribution caps, and even potential carry-over issues in case you exceed the 2025 limits.