CHANGES TO CHARITABLE DONATIONS

You are allowed to make cash donations up to 60% of your adjusted gross income (AGI) for 2025.  Donations of appreciated assets are limited to 30% of AGI. There are no limitations specifically targeting high AGI earners beyond the standard AGI caps in the OBBBA.

The recently enacted changes for the charity rules are effective for tax year 2026. The legislation created an “above the line” deduction, $2,000 for married filers and $1,000 for single filers, but only if you are unable to itemize your deductions. If you have and expect to continue to be able to itemize your deductions (taxes, interest and charity) for the foreseeable future, then this provision will not benefit you at all.

The new legislation caps the tax benefits of itemized charitable deductions at the 35% tax bracket, even for those taxpayers in the 37% marginal tax bracket. In other words, a high-income joint filer donating $100,000 would receive a $35,000 federal tax savings instead of the current $37,000 federal tax savings. This change goes into effect in the 2026 tax year.

What is the implication: Donors in higher tax brackets who are considering a significant philanthropic gift may want to think about accelerating future gift to 2025 to maximize their deduction under the current marginal rate before the new cap goes into effect.

Also, effective in the 2026 tax year, creates a threshold floor for charitable deductions. Itemizers who make charitable contributions will only be able to claim a tax deduction to the extent that their qualified contributions exceed 0.5% of their adjusted gross income (AGI).

For example, if your 2026 AGI was $1,000,000, then 0.5% is $5,000. The .05% floor at the 35% tax bracket is costing your $1,750 in tax savings. If you donated $80,000, your deduction would be $75,000. Thus, with a 35% marginal tax bracket cap and a $80,000 donation, of which only $75,000 is deductible, the 2% tax bracket cap would cost you an additional $1,500 in tax savings. With these two legislative provisions, there’s enough of a differential to consider accelerating 2026 donations to 2025.

If charitable giving is an important part of your financial plan, now is the time to evaluate whether shifting gifts into 2025 could make sense for you. The rules change in 2026, and proactive planning this year may create meaningful additional tax savings.