Charitable giving in 2026: the new 0.5% floor and bunching

Charitable giving in Midland tends to be steady: the church, the school foundation, the food bank, year after year. The tax law that took effect for 2026 doesn't change why people give, but it changes the math of when. Itemizers now lose the deduction on the first half-percent of their income in gifts, non-itemizers get a modest deduction back, and the top bracket's deductions are trimmed. Together, those rules make one old strategy, bunching several years of giving into a single year, noticeably more valuable. Here's what changed and how to respond.

What changed on July 4, 2025

The law is Public Law 119-21, signed July 4, 2025. Its charitable provisions amend IRC §170, and the ones that matter for individuals all apply to tax years beginning after December 31, 2025, so they show up for the first time on the 2026 return you'll file in early 2027:

• A 0.5 percent floor for itemizers. Charitable contributions are deductible only to the extent they exceed 0.5 percent of your contribution base, which for most people is adjusted gross income.
• A deduction for people who don't itemize. Up to $1,000 ($2,000 on a joint return) of cash gifts to public charities can be deducted on top of the standard deduction. Gifts to donor-advised funds, supporting organizations, and most private foundations don't count toward it.
• The 60 percent AGI limit for cash gifts is permanent. It had been scheduled to fall back to 50 percent.
• A haircut on itemized deductions in the 37 percent bracket. The rewritten IRC §68 reduces total itemized deductions by 2/37 of the lesser of those deductions or the income taxed at 37 percent. The effect is that a dollar of charitable deduction saves a top-bracket taxpayer about 35 cents rather than 37.

The IRS has begun publishing guidance on the new law under the heading Working Families Tax Cuts, and the 2026 Form 1040 instructions and Publication 526 will carry the details. Until then, the statute is the source.

How the 0.5 percent floor works

The floor is simple to compute and easy to underestimate. Take your AGI, multiply by 0.005, and that amount of charitable giving earns no deduction this year.

• AGI of $200,000: the first $1,000 of gifts is non-deductible.
• AGI of $400,000: the first $2,000.
• AGI of $1,000,000: the first $5,000.

The floor applies every year you itemize, which is the point. A family that gives $15,000 annually on $400,000 of income loses $2,000 of deductions each year, or $20,000 over a decade. Give the same $150,000 in two or three large installments instead, and the floor applies two or three times rather than ten.

The amount lost to the floor is generally gone. The statute allows it to be carried forward only in limited circumstances, essentially when your gifts for the year also run past the AGI percentage caps, so for most donors the floor is a permanent reduction rather than a timing difference.

Two things the floor does not do. It doesn't apply to the new non-itemizer deduction, which has its own flat limits. And it doesn't change the deduction for a qualified charitable distribution from an IRA (more on that below), because a QCD is excluded from income rather than deducted.

The new deduction if you don't itemize

Since 2018, most households have taken the standard deduction and received no tax benefit from charitable gifts at all. For 2026, the standard deduction is $32,200 for a married couple filing jointly and $16,100 for a single filer, per the IRS's inflation adjustments. Many families with a paid-off house and modest state and local taxes don't get near those numbers.

The new rule gives those households a deduction of up to $1,000 ($2,000 joint) for cash gifts, claimed in addition to the standard deduction. It's modest, it's cash only, and it doesn't cover donor-advised funds. But it's permanent, and it pairs well with bunching: in the years you take the standard deduction, you can still give up to $2,000 directly to charities and deduct it.

Why bunching beats annual giving now

Bunching means concentrating two, three, or more years of charitable gifts into one tax year, itemizing in that year, and taking the standard deduction in the others. A donor-advised fund (DAF) makes it practical: you contribute to the fund and take the full deduction in the year of the contribution, then recommend grants to your church and local nonprofits on whatever schedule you like, so the charities see no change in their annual support.

Bunching has always had one advantage: it lets you clear the standard deduction in the bunching year and still collect the standard deduction in the off years. The new law adds two more.

1. You pay the 0.5 percent floor once instead of annually. Three years of giving in one year means one floor, not three.
2. You can aim the deduction at a high-income year. A year with a mineral sale, a practice sale, a large royalty check, or a bonus is a year to fund the DAF, and the deduction lands against income taxed at the highest rates. The 60 percent of AGI cap for cash (30 percent for appreciated securities) is generous enough that most bunching plans fit comfortably.

The DAF also opens the best asset to give: appreciated stock held more than a year. You deduct the fair market value and never pay capital gains tax on the appreciation. Selling the stock and giving cash would cost you the gains tax first. For investors sitting on positions that have run up, a DAF funded with stock is routinely the cheapest dollar of giving available.

A worked example

A Midland couple with $400,000 of AGI gives $20,000 a year. They pay $20,000 in state and local taxes (deductible under the raised SALT cap) and $8,000 of mortgage interest, so their other itemized deductions total $28,000. Their 2026 standard deduction is $32,200.

Giving $20,000 every year. The floor removes $2,000, leaving $18,000. Itemized deductions are $28,000 + $18,000 = $46,000 per year. Over three years: $138,000 of deductions.

Bunching three years into 2026. They put $60,000 into a donor-advised fund in 2026 and grant $20,000 a year from it. The floor applies once, removing $2,000, leaving $58,000. In 2026 they itemize $28,000 + $58,000 = $86,000. In 2027 and 2028 they take the $32,200 standard deduction (plus up to $2,000 for any cash they give directly, which we'll leave out to keep the comparison clean). Over three years: $86,000 + $32,200 + $32,200 = $150,400 of deductions.

The difference is $12,400 of deductions, which at their marginal rate saves roughly $4,000 in federal tax. The charities receive the same $20,000 each year, on the same schedule. Fund the DAF with appreciated stock instead of cash and the saving grows by the capital gains tax avoided. Scale the numbers up for a larger giver, or stretch to a five-year bunch, and the figures grow with them.

Other moves worth knowing

• Qualified charitable distributions. If you're 70½ or older, you can direct up to $111,000 in 2026 ($108,000 in 2025) from an IRA straight to charity. The distribution is never included in income, which means no floor, no itemizing required, and it counts toward a required minimum distribution. For retirees who give, this is usually the first dollar of giving to arrange.
• Non-cash gifts need paperwork. Gifts of property over $5,000 (other than publicly traded securities) require a qualified appraisal and Form 8283. Mineral interests donated to a charity fall squarely in this category.
• Timing within the year matters. A gift counts when it's delivered: a check mailed by December 31, a stock transfer completed, a DAF contribution received. Brokerage transfers in late December can slip into January.

How we plan giving

Charitable planning is part of the year-round tax planning we do with clients, and it shows up on the individual return we prepare:

1. Map the next several years of income. Bunching belongs in the year the deduction is worth most.
2. Set the bunching interval so the itemized year clears the standard deduction by a wide margin and the off years use it fully.
3. Choose the asset. Appreciated securities first, cash second, with the AGI caps checked.
4. Open and fund the donor-advised fund before year-end, with the acknowledgment letters in the file.
5. Keep the charities whole. Grants go out on the schedule you've always kept; only the tax timing changes.

The 2026 rules reward people who plan their giving and penalize, a little, people who don't. For most families that give steadily, a few hours of planning this fall is worth several thousand dollars over the next few years.

This article is general information, not tax advice for your situation. Talk with a CPA before changing how or when you give.