Beginning in 2026, taxpayers who itemize deductions and make charitable contributions will encounter new limitations on how much they can deduct. In some situations, two separate limits may apply. On a positive note, individuals who don’t itemize will once again be able to deduct certain charitable donations.
Understanding these changes now can help you plan your giving and tax strategy more effectively.
A New Charitable Deduction Floor for Itemizers
Under the One Big Beautiful Bill Act (OBBBA), a new floor on charitable deductions takes effect in 2026 for taxpayers who itemize. Specifically, your otherwise allowable charitable contribution deduction will be reduced by 0.5% of your adjusted gross income (AGI).
In practical terms, only the portion of your charitable donations that exceeds 0.5% of your AGI will be deductible.
What Counts Toward AGI?
Adjusted gross income generally includes all taxable income and is reduced by certain above-the-line deductions, such as:
- Traditional IRA contributions
- Contributions to self-employed retirement plans
- Self-employed health insurance premiums
- One-half of self-employment tax
- Qualified student loan interest
- Health Savings Account (HSA) contributions
Example of the New Charitable Deduction Floor
Assume you and your spouse file a joint return in 2026. Your AGI is $400,000, and you donate $10,000 to qualified charities during the year.
Under the new rule, your charitable deduction would be limited to:
- $10,000 − (0.5% × $400,000) = $8,000
The remaining $2,000 would not be deductible.
New Limitation on Itemized Deductions for High-Income Taxpayers
The OBBBA also introduces an additional limitation on itemized deductions — including charitable contributions — for individuals subject to the top federal income tax rate of 37%, starting in 2026.
For these taxpayers, total itemized deductions will be reduced by the lesser of:
- 2/37 of otherwise allowable itemized deductions, or
- 2/37 of taxable income (before itemized deductions) that exceeds the threshold for the 37% tax bracket
Although the calculation is complex, the result is generally that itemized deductions for taxpayers in the highest bracket provide a tax benefit similar to what they would receive if they were taxed at 35% instead of 37%.
How the Two Limits Work Together
If both rules apply, the charitable deduction floor is calculated first. The itemized deduction limitation is then applied to the remaining deductions. As a result, only higher-income individuals will be affected by both provisions.
Planning Strategies for 2025 and Beyond
With these changes approaching, proactive planning can help reduce their impact.
Accelerate Donations Into 2025
If you expect to itemize deductions in both 2025 and 2026, consider making some charitable contributions in 2025 rather than waiting until 2026. Doing so may allow you to fully deduct those donations before the 0.5%-of-AGI floor takes effect.
Manage Your AGI
In future years, reducing your AGI can help minimize the charitable deduction floor. Possible strategies include:
- Harvesting capital losses in taxable investment accounts
- Increasing deductible or pretax retirement plan contributions
Consider Bunching Charitable Contributions
Another option is to concentrate charitable giving into alternating years. For example, instead of donating $10,000 annually, you might donate $20,000 every other year.
Because the reduction is based on AGI rather than the size of the deduction, bunching donations can increase your overall tax benefit if your AGI remains relatively stable.
Bunching Example
Using the earlier example with a $400,000 AGI:
- Donating $10,000 in both 2026 and 2027 would reduce each year’s deduction by $2,000, resulting in total deductions of $16,000 over two years.
- Donating $20,000 in a single year would reduce the deduction by $2,000 once, resulting in a total deduction of $18,000 over the same two-year period.
Before using a bunching strategy, it’s important to evaluate the full tax impact. If skipping itemized deductions in one year would push you into a higher tax bracket, bunching may not be the right choice.
New Charitable Deduction for Nonitemizers
Taxpayers who claim the standard deduction generally don’t benefit from charitable deductions. In recent years, including 2025, nonitemizers have not been allowed to deduct charitable contributions at all.
Starting in 2026, however, the OBBBA reinstates a deduction for cash charitable donations made by nonitemizers. The annual limits are:
- $1,000 for single filers
- $2,000 for joint filers
These limits are higher than the temporary COVID-era amounts that applied in 2021.
What Qualifies as a Cash Contribution?
The definition of a cash contribution is broader than many taxpayers realize. It includes donations made by:
- Check
- Debit or credit card
- ACH transfer
- Online payment platforms
- Payroll deduction
Keep in mind that this deduction does not reduce AGI.
What to Do This Year and Next
Limits on charitable contribution deductions have always existed, and additional restrictions continue to apply. For example, donations must be made to qualified organizations, proper documentation is required, and other AGI-based limits may apply depending on the circumstances.
We recommend reviewing your charitable giving and overall tax situation now. Contact us to discuss what you can deduct on your 2025 return, last-minute planning opportunities, and how to structure your charitable donations under the new rules taking effect in 2026.
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