Charitable Giving After the OBBBA: How the New AGI Floor and Deduction Caps Change Your Philanthropy Strategy

Key Points:

• Beginning in 2026, itemizers can only deduct charitable contributions that exceed 0.5% of their adjusted gross income (AGI) — meaning the first portion of every donor’s annual giving produces no deduction.
• Taxpayers in the top 37% federal income tax bracket now face a cap: the tax benefit of itemized charitable deductions is limited to 35 cents per dollar donated, down from 37 cents.
• The 2026 QCD limit rises to $111,000 per individual ($222,000 for married couples where both spouses have IRAs), making qualified charitable distributions from IRAs more valuable than ever.
• Donor-advised funds remain one of the most flexible and tax-efficient vehicles for high-net-worth giving, particularly for bunching and acceleration strategies.
• Non-itemizers gain a new above-the-line deduction of up to $1,000 (single) or $2,000 (married filing jointly) for cash gifts to qualified public charities, beginning in 2026.
• The 60% of AGI limitation for cash gifts to public charities, temporarily established under the TCJA, is now permanent under the OBBBA.
• Estate plans, IRA withdrawal strategies, and annual gifting programs all interact with the new charitable deduction rules — a coordinated review is worth scheduling.

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The One Big Beautiful Bill Act (OBBBA), signed into law on July 4, 2025, made sweeping changes to the federal tax code — and while much of the early attention focused on estate and gift tax exemptions, the law’s effect on charitable deductions deserves equally serious consideration. For high-net-worth individuals and families who give generously, the rules governing how and when you deduct those gifts changed meaningfully beginning January 1, 2026.

The changes are not dramatic enough to discourage giving. But they are significant enough to make the structure of your giving strategy matter more than it did before. Done thoughtlessly, annual giving now costs more in lost tax benefit. Done strategically, donors can maintain or even improve their philanthropic efficiency despite the new constraints.

What Changed Under the OBBBA for Charitable Deductions?

The OBBBA preserved the basic framework of charitable deductions — itemizers can still deduct qualifying contributions subject to AGI percentage limits — but added two new restrictions that directly affect high-income donors.

The 0.5% AGI floor. For tax years beginning after December 31, 2025, itemizing taxpayers may only deduct charitable contributions to the extent they exceed 0.5% of their contribution base (essentially, their AGI before certain adjustments). For a donor with $1 million in AGI, the first $5,000 of annual giving is no longer deductible. For a donor with $2 million in AGI, the non-deductible floor rises to $10,000. This may seem modest, but for donors who give consistently across many organizations in smaller amounts, the cumulative effect on deductions is real.

The 35% deduction cap for top-bracket taxpayers. Donors in the 37% federal income tax bracket now have their itemized deduction benefit effectively capped at 35 cents per dollar donated. Prior to the OBBBA, a $50,000 gift produced up to $18,500 in federal tax savings for a top-bracket donor. Under the new rules, that same gift produces up to $17,500 — a difference of $1,000 per $50,000 donated. For major donors making $250,000 or more in annual gifts, the cumulative impact across multiple years warrants a deliberate planning response.

What didn’t change. The 60% of AGI limitation for cash gifts to public charities, which the TCJA had temporarily expanded from 50%, is now made permanent under the OBBBA. The five-year carryforward for contributions exceeding annual AGI limits is also preserved. Qualified charitable distributions from IRAs were not altered by the OBBBA, though the annual limit adjusts to $111,000 per individual in 2026. And the deduction for gifts of appreciated property to public charities — generally limited to 30% of AGI — remains intact.

Does the 0.5% AGI Floor Change How I Should Structure Annual Giving?

For many high-net-worth donors, yes — particularly those whose annual gifts are distributed across multiple organizations in relatively modest amounts.

Consider a donor with $800,000 in AGI who gives $4,000 across eight charities ($500 each). Under prior law, that $4,000 was fully deductible. Under the OBBBA, the first $4,000 of giving — equal to 0.5% of AGI — produces no deduction. Only contributions above that floor generate a deductible benefit.

This dynamic creates a planning incentive to concentrate rather than disperse annual giving, or to front-load contributions into a single vehicle. For donors who give across many causes, a donor-advised fund can serve as a consolidation point — the full contribution to the DAF is deductible (subject to AGI limits) in the year it is made, while grants to individual charities can be recommended over time. The 0.5% floor is crossed once, and the donor retains full flexibility over grant timing and beneficiaries.

How Does a Donor-Advised Fund Help Under the New Rules?

A donor-advised fund (DAF) is an account held by a sponsoring organization — typically a financial institution or community foundation — into which donors make irrevocable contributions and receive an immediate charitable deduction. The donor then recommends grants to qualified organizations over time. Assets held in the DAF can be invested and may grow tax-free, and the donor retains advisory privileges over grant recommendations.

Under the OBBBA rules, DAFs remain one of the most versatile tools available to high-net-worth donors. A contribution of appreciated securities to a DAF removes the asset from the donor’s taxable estate, eliminates capital gains tax on the built-in appreciation, and generates a deduction equal to the fair market value of the securities at the time of contribution — all subject to applicable AGI limits.

DAFs are also ideally suited to bunching strategies. A donor who expects to give $25,000 per year for five years could instead contribute $125,000 to a DAF in 2026, deducting the full amount in a single year (subject to the 60% of AGI limit for cash and 30% for appreciated property). The DAF then distributes grants to the donor’s preferred charities on the original schedule. This approach allows the donor to exceed the 0.5% AGI floor more decisively in the contribution year while maintaining consistent philanthropic activity in subsequent years.

One important limitation: DAFs are not eligible recipients for qualified charitable distributions from IRAs. If your giving strategy relies heavily on QCDs, those distributions must go directly to operating public charities.

What Is a Qualified Charitable Distribution and Why Is It More Valuable Now?

A qualified charitable distribution (QCD) is a direct transfer from a traditional IRA to a qualified public charity, available to IRA owners age 70½ or older. For 2026, the annual QCD limit is $111,000 per individual — meaning a married couple where both spouses have their own IRAs can direct up to $222,000 to charity in a single year using QCDs.

The key advantage of a QCD is that the distribution is excluded from taxable income entirely. It is not counted as gross income, does not appear as a charitable deduction on Schedule A, and bypasses both the new 0.5% AGI floor and the 35% deduction cap that apply to itemized contributions. For donors in the top bracket, this makes the QCD the most tax-efficient charitable giving vehicle available under the post-OBBBA rules — more efficient, in many circumstances, than a direct cash contribution.

QCDs can also be used to satisfy all or part of an IRA owner’s required minimum distribution (RMD) for the year. For a donor age 73 or older who does not need IRA distributions to fund living expenses, redirecting some or all of the RMD to charity through a QCD eliminates the income that would otherwise increase AGI — which in turn can reduce Medicare Part B and D premiums, minimize the taxability of Social Security benefits, and prevent other income-based phaseouts.

One planning note: QCDs cannot be directed to donor-advised funds or private foundations. The receiving organization must be a qualifying public charity under IRC Section 170(b)(1)(A). Confirm eligibility before initiating a QCD.

Should I Still Consider Bunching Charitable Contributions?

Yes — and the OBBBA strengthens the case for it.

Bunching is the practice of accelerating multiple years’ worth of charitable giving into a single tax year, typically by using a donor-advised fund to receive the lump-sum contribution. The goal is to exceed both the standard deduction threshold and the 0.5% AGI floor in the contribution year, while taking the standard deduction in the intervening years.

Under the 2026 standard deduction amounts — $16,100 for single filers and $32,200 for married filing jointly — many high-net-worth taxpayers already itemize, so the standard deduction threshold is less of a factor. But the 0.5% AGI floor creates an additional reason to concentrate giving: the larger the single-year contribution relative to AGI, the more of it escapes the non-deductible floor.

A donor with $1.5 million in AGI who gives $15,000 per year sees the first $7,500 produce no deduction each year. If instead that donor contributes $75,000 to a DAF every five years, only $7,500 — the single application of the floor in the bunching year — is lost to the floor. The remaining $67,500 generates a deduction, compared to $37,500 in deductions over five years of annual giving. The structural improvement is meaningful.

What About Appreciated Stock and Other Non-Cash Gifts?

The OBBBA did not alter the rules governing contributions of appreciated property. Gifts of long-term capital gain property to public charities are generally deductible at fair market value, subject to a 30% of AGI limitation, with a five-year carryforward for any excess. Gifts of appreciated securities to private foundations are subject to lower limits — typically 20% of AGI and deductible at cost basis rather than fair market value.

For donors holding highly appreciated securities, gifting shares directly to a charity or to a donor-advised fund remains one of the most tax-efficient strategies available. The embedded capital gain is never recognized, the donor receives a deduction at current fair market value, and the charity or DAF receives the full value of the shares. For a donor in the top bracket holding stock with a $200,000 market value and a $20,000 cost basis, the tax savings from avoiding capital gains alone can be substantial — separate from any income tax deduction benefit.

This strategy is particularly well-suited to donors whose DAF is funded with concentrated positions or low-basis shares accumulated over decades of investing.

How Do These Changes Interact With Estate Planning?

With the federal estate and gift tax exemption now permanently set at $15 million per individual under the OBBBA, most high-net-worth families will not face federal estate tax. For those families, the primary tax benefit of lifetime charitable giving shifts from estate tax reduction to income tax reduction — and that makes the efficiency of the income tax deduction more important, not less.

Families with estates well above $15 million may still consider charitable bequests, charitable remainder trusts (CRTs), or charitable lead trusts (CLTs) as components of an integrated estate plan. CRTs, in particular, can provide a stream of income to the donor during life, a partial current deduction, and a charitable gift at the donor’s death — with assets passing outside the taxable estate. For 2026, donors can also fund a CRT or a charitable gift annuity with a one-time QCD of up to $55,000, using tax-deferred IRA dollars.

The coordination of charitable giving with estate planning, IRA distribution strategy, and income tax planning has never been more important. Changes to one component can meaningfully affect the others.

What You Should Be Thinking About Now

At Carter Financial Management, we have worked with families on philanthropic planning through multiple cycles of tax law changes. What we have learned is that the families who give most effectively are not necessarily those who give the most — they are the ones who align their giving vehicles with their overall financial structure and review that alignment when the rules change.

The OBBBA changes are not a reason to give less or to curtail long-standing philanthropic commitments. They are a reason to be more intentional about the mechanics. Moving gifts to a donor-advised fund, using QCDs to satisfy RMDs, timing larger contributions to bunch above the AGI floor — each of these is a straightforward adjustment that can preserve the full impact of your generosity without surrendering unnecessary tax benefit.

If your annual giving program has not been reviewed in light of the 2026 changes, or if you are wondering how your IRA distribution strategy intersects with your charitable goals, we invite you to schedule a conversation with our team. The best philanthropy planning happens when it is integrated with the rest of your financial life — and we are here to help you do exactly that.

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This content was created with the assistance of artificial intelligence (AI). While efforts have been made to ensure the quality and reliability of the content, it is important to note that AI-generated content may not always reflect the most current developments or nuanced human perspectives.

The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Any opinions are those of Ellenore Baker, CFP® and not necessarily those of Raymond James. Expressions of opinion are as of this date and are subject to change without notice. There is no guarantee that these statements, opinions or forecasts provided herein will prove to be correct. Raymond James and its advisors do not offer tax or legal advice. You should discuss any tax or legal matters with the appropriate professional.

Donors are urged to consult their attorneys, accounts or tax advisors with respect to questions relating to the deductibility of various types of contributions to a Donor-Advised Fund for federal and state purposes. Please be aware that there may be substantial fees, charges and costs associated with establishing a charitable remainder trust.