The recent passing of the One Big Beautiful Bill Act (OBBBA) means several new limitations on itemized charitable deductions are around the corner in 2026.
For high-income individuals who are already charitably inclined, these changes mean the most tax-efficient strategy may be to accelerate charitable contributions into 2025.
In this article, we’ll cover what’s changing, who is most affected, and why “bunching” gifts — especially through a donor-advised fund — can help preserve more of the deduction before the new limits take effect.
What’s Changing Under OBBBA?
1. A New 0.5% of AGI Floor on Charitable Deductions (Starting 2026)
Before anything else, your charitable deductions are trimmed by a new rule: you can only deduct the amount that exceeds 0.5% of your Adjusted Gross Income (AGI).
For example, if your AGI is $600,000, the first $3,000 of charitable gifts provides no deduction.
2. The "Pease-Style" Reduction
In addition to the new 0.5% AGI floor, OBBBA adds a second limitation that affects high-income taxpayers: a Pease-style reduction that trims the amount of total itemized deductions you’re allowed to claim.
This rule doesn’t eliminate the deduction, but it reduces the portion you can actually use — meaning high-income donors may see thousands of dollars of charitable deductions shaved off simply because of their income level.
How the rule works:
Your allowable itemized deductions are reduced by 2/37 of the lesser of:
- (A) Your total itemized deductions, or
- (B) The amount of income taxed at the highest bracket (currently 37%).
Example: How Much Could You Lose?
In these two scenarios, we'll consider the tax impact of charitable gifts made by a couple that has:
- $1,000,000 AGI
- Approx. $250,000 of income taxed at the 37% bracket
| Moderate Gift ($30,000) | Large Gift ($100,000) | |
| Itemized deductions after floor | $100,000 | $500,000 |
| Lesser of (A) or (B) | $100,000 | $250,000 |
| Reduction (2/37 x lesser) | $100,000 | $250,000 |
| Allowable deductions | $94,595 | $236,487 |
| Extra tax owed (37% x reduction) | ~$2,000 | ~$5,000 |
What this shows:
Even though the couple donates more in the second scenario, the Pease-style limitation erodes a larger portion of their deduction — meaning bigger giving leads to bigger tax loss under the new rules.
Why It’s Tax-Efficient to Give in 2025
Because the new rules don’t affect 2025 returns, charitable gifts made before December 31, 2025 retain the full, current-law deduction.
For those who already donate regularly — or who plan to make substantial gifts in the next several years — giving earlier can lead to significantly higher tax savings.
Smart Moves to Lock in Today’s Tax Benefits
1. Pre-Fund a Donor-Advised Fund (DAF)
- Claim the full deduction in 2025
- Contribute cash or appreciated securities
- Distribute grants to charities over time
This is one of the most efficient ways to bunch multiple years of giving while keeping flexibility.
2. Donate Appreciated Securities
Gifting long-term appreciated stock:
- Avoids capital gains tax
- Preserves the full fair market value deduction (when done in 2025)
- Allows clients to repurchase positions with a higher cost basis if desired
Pairing appreciated securities with a DAF is particularly powerful.
3. Consider QCDs for IRA Owners Age 70½+
Qualified Charitable Distributions:
- Reduce AGI directly
- Count toward RMDs
- Are unaffected by itemized deduction limitations
Although QCDs aren’t impacted by OBBBA in the same way, they remain an important planning tool.
4. Review Existing Charitable Carryforwards
If you already have charitable carryforwards, it’s important to model:
- How the 2026 rules may reduce their usability
- Whether adding additional gifts in 2025 creates a more favorable stacking effect
Who Should Act Now?
These changes most affect:
- High-income taxpayers who consistently itemize deductions
- Philanthropically inclined families making annual gifts
- Anyone planning a large future gift (e.g., business sale proceeds, inheritance, bonus year)
- Anyone already considering a DAF or multi-year giving plan
Waiting until 2026 could mean receiving a materially smaller tax benefit for the exact same charitable gift.
What to Do Before Year-End 2025
- Revisit your charitable giving strategy with your advisor
- Consider bunching several years of planned giving into 2025
- Evaluate whether a donor-advised fund makes sense for your goals
- Identify appreciated securities that could be donated for additional tax advantages
Final Thoughts
These changes could significantly impact your giving strategy and your tax savings. So, if you’re charitably inclined — or want to explore multi-year strategies like donor-advised funds or appreciated securities gifting — now is the time to plan.
At Plancorp, we can help you navigate these changes, so your generosity remains as impactful and tax-efficient as possible. Your charitable goals matter. Let’s make sure tax law changes don’t stand in the way of your impact.
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