H.R.1, the One Big Beautiful Bill Act (OBBBA), made several changes to the tax rules for charitable contributions. These included a new charitable contribution deduction for non-itemizers effective starting in 2026. For itemizers, there is a new 0.5 percent of adjusted gross income floor on charitable contribution deductions starting in 2026, and the 60 percent AGI limit on charitable contribution deductions was made permanent. A new 1 percent floor on corporate charitable contributions is also effective starting in 2026. Also starting in 2026, a new credit has been created for contributions to state-certified scholarship granting organizations.
For 2026, these new developments must be compared to the many existing tax provisions on charitable contributions. These include the ability to contribute to donor advised funds to get a current deduction for contributions from the fund made in future years. They also include the ability to contribute appreciated securities and receive a charitable contribution deduction for the fair market value of the securities without having to take the appreciation into income. It also includes the ability of taxpayers over age 70 ½ to make direct withdrawals from an IRA to a qualified charity without taking the withdrawal into income although losing the itemized charitable contribution deduction for those funds.
So, where does that leave us for planning for 2026 charitable contributions?
Non-itemizers
The majority of taxpayers still will be better off claiming the standard deduction and not itemizing deductions. They will now have a charitable deduction restored that was last available for a couple of years during COVID. This time the deduction is made permanent and is increased to $1,000 and $2,000 for married filing jointly. The contribution must be made in cash or cash equivalents to a public charity. Contributions to supporting organizations or new or existing donor advised funds do not qualify.
Although the IRS has not yet provided any clarification, the deduction appears to be a below-the-line deduction that does not reduce adjusted gross income.
Taxpayers age 70 ½ or older
Especially with the new floor on itemized charitable contributions, the ability of taxpayers age 70 ½ or older to make direct qualified charitable distributions (QCDs) to a charity from an IRA and not take any related required minimum distributions (RMDs) into AGI seems to be the clear winning strategy. It may only be a winning strategy for taxpayers required to take minimum distributions, which has now been postponed to age 73 or 75. The dollar limit is $111,000 for 2026. Married couples can each claim their own IRA distribution for the full amount. The distribution must be made directly to the charity and not pass through the taxpayer. The distribution cannot be made to donor advised funds, supporting organizations, or most private foundations except private operating foundations. Nothing may be received of value from the charity in return for the contribution. The custodian may use Code Y to identify OCDs, which should also be labeled as a QCD on the tax return next to any taxable amount.
For 2026, a one-time QCD up to $55,000 may be made to a charitable remainder trust or a charitable gift annuity.
Other individual taxpayers
Taxpayers who itemize deductions and who are not required to take RMDs may still deduct charitable contributions up to 60 percent of AGI. The 60 percent limit is available for cash contributions to public charities and most private operating foundations. The increase in the state and local tax deduction limit to $40,000 from $10,000 should increase the number of taxpayers who can take advantage of itemized deductions as compared to the standard deduction.
Donations of appreciated property such as publicly traded stock, mutual funds, real estate, and crypto are subject to a 30 percent of AGI limit and, importantly, the appreciation is not subject to capital gains tax on the donation. If both cash and appreciated property contributions are made, taxpayers should consider that the IRS will treat the cash contributions as deducted first.
Private foundation contributions are subject to lower limits: 30 percent for cash and 20 percent for appreciated property.
New for 2026 is the 0.5 percent of AGI floor on the charitable contribution deduction. Also new is the restriction on itemized deductions for taxpayers in the 37 percent tax bracket, limiting the tax benefit to the 35 percent tax bracket. Excess charitable contributions may generally be carried forward for five years.
Itemizers may continue to utilize donor advised funds to obtain a current charitable contributions deduction for contributions to a public charity while retaining a non-binding advisory privilege to make charitable grants over future years. Generally, funds should be distributed within five years to avoid issues with the private foundation excess business holdings rules.
Itemizers may also benefit from bunching charitable contributions into every other year to help reduce the impact of the deduction floor and take advantage of the standard deduction in the off year.
Summary
As the tax provisions relevant to charitable contributions continue to multiply, including possible state tax impacts, taxpayers are likely to find that it will be helpful to discuss options to maximize their tax benefits by consulting a tax expert. A tax expert can assist with even more sophisticated charitable estate planning, such as charitable bequests, charitable beneficiaries of retirement accounts, charitable lead trusts, and charitable remainder trusts.
ABOUT THE AUTHOR
Mark Luscombe, J.D., LL.M, CPA, is the principal federal tax analyst for Wolters Kluwer Tax & Accounting. He is the current chair of the Important Developments Subcommittee of the Partnership Committee of the American Bar Association Tax Section and speaks on a wide range of tax topics. Prior to joining Wolters Kluwer, he was in private practice with several Chicago-area law firms where he specialized in taxation.
Photo credit: CatLane/iStock
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