Key Takeaways
- Beginning in 2026, non-itemizers may deduct qualifying cash charitable contributions up to $1,000, or $2,000 for married taxpayers filing jointly.
- Itemized charitable deductions face a 0.5% adjusted gross income floor, while taxpayers in the 37% federal tax bracket receive a maximum 35% tax benefit.
- Qualified charitable distributions (QCDs) remain a tax-efficient option for eligible IRA owners, bypassing the 0.5% floor and reducing adjusted gross income.
Charitable giving is usually driven by our desire to support a cause, but tax rules can influence a gift’s timing and form. The One Big Beautiful Bill Act (OBBBA) changes federal charitable deduction rules for tax years beginning in 2026. Taxpayers should consider whether to itemize, which assets they donate and whether an IRA distribution offers a better result.
New Deduction for Non-Itemizers
Beginning in 2026, an individual who claims the standard deduction may also deduct qualifying cash contributions under Internal Revenue Code (IRC) Section 170(p). The annual limit is $1,000, or $2,000 for married taxpayers filing jointly. The cash must go to an eligible organization described in Section 170(b)(1)(A). Gifts to supporting organizations and donor-advised funds do not qualify.
The contribution must be made in cash directly to an eligible organization such as a qualifying church, educational institution, hospital or public charity. For example, a $500 cash donation made directly to a local food bank may be deductible even when the taxpayer does not itemize.
0.5% Floor for Itemized Charitable Deductions
Taxpayers who itemize face a new limitation under Section 170(b)(1)(I). Charitable contributions are deductible only to the extent total contributions exceed 0.5% of the taxpayer’s “contribution base,” generally adjusted gross income computed without a net operating loss carryback.
For example, a taxpayer with $500,000 of AGI has a $2,500 floor. If the taxpayer contributes $20,000, only $17,500 is potentially deductible. The first 0.5% of AGI contributed will not yield a deduction. This floor may increase the value of “bunching” several years of gifts into one year.
Donors should also consider contributing appreciated securities instead of selling them and donating cash. A direct gift of long-term appreciated property can generally avoid recognition of the built-in gain. Limitations may still apply.
Reduced Benefit in the 37% Bracket
Beginning in 2026, taxpayers with income in the 37% federal tax bracket could receive a smaller benefit from their itemized deductions. Under IRC Section 68, itemized deductions are reduced to limit the federal tax benefit to 35%, rather than 37%.
For example, an itemized deduction that would otherwise reduce federal tax by $370 may reduce tax by approximately $350 after applying Section 68. This limitation applies after other restrictions, including the new 0.5% floor on charitable deductions.
The Continuing Power of a QCD
A qualified charitable distribution (QCD) under Section 408(d)(8) remains valuable for an IRA owner who is at least age 70½ on the distribution date. The IRA owner can transfer up to $111,000 directly to an eligible charity in 2026.
A QCD is excluded from gross income instead of being claimed as an itemized deduction. It therefore bypasses the 0.5% floor, does not require itemizing and may satisfy all or part of a required minimum distribution. By reducing AGI, it may also improve other income-based tax calculations. QCDs cannot be made to donor-advised funds and no separate charitable deduction is allowed for the excluded amount.
Planning Is the Key to Tax Savings
The new charitable-giving tax rules create both opportunities and limitations for taxpayers. The tax value of a charitable gift will depend more than ever on the donor’s income, other deductions and choice of giving vehicle. Careful planning around the timing, form and source of charitable contributions can help maximize the tax benefits of giving.
Contact Us
Our team of tax specialists can help you evaluate these changes in the context of your broader tax and financial goals and identify strategies appropriate for your individual circumstances. Reviewing charitable plans before year-end can help ensure that generosity is paired with the most efficient tax strategy.
If you have any questions or would like to discuss your personal tax situation, please contact your PKF O’Connor Davies client team or:
Bonnie Orr, CPA
Partner
borr@pkfod.com
Greer Gervolino
Supervisor
ggervolino@pkfod.com