For many high-income and high-net-worth families, charitable giving has long been one of the most effective ways to combine purpose with tax efficiency. However, starting in 2026, new IRS rules will significantly reduce the tax benefits of charitable deductions.
If philanthropy has been part of your tax strategy, now is the time to take action — 2025 may be your last window to maximize deductions under the current, more favorable rules.
The New Landscape: Charitable Deductions Will Shrink After 2025
Under the 2026 tax changes, charitable deductions will be subject to two key restrictions:
- A deduction floor — only contributions exceeding 0.5% of your adjusted gross income (AGI) will qualify.
- A deduction cap — the maximum benefit from itemized charitable deductions will be limited to the 35% tax bracket, even for taxpayers in higher brackets.
Let's break these down.
1. The 0.5% AGI Floor: Not Every Dollar Will Be Deductible
Beginning in 2026, charitable contributions must exceed 0.5% of your AGI to qualify for a deduction. Any amount below that threshold provides no tax benefit — it's simply an after-tax gift.
Example:
- AGI: $1,000,000
- Charitable gift: $100,000 in appreciated NVDA stock
If you make this gift in 2025, the full $100,000 is deductible.
Your taxable income is reduced to $900,000.
If you wait until 2026, the first 0.5% of AGI ($5,000) doesn't count.
Only $95,000 is deductible, leaving taxable income at $905,000.
That $5,000 is effectively a “pure donation” — great for the soul, not for the tax return — and it cannot be carried forward.
2. The 35% Deduction Cap: A Subtle but Costly Change
For taxpayers in the highest tax bracket (currently 37%), charitable deductions will be capped at 35%, further reducing their tax savings.
Using the same example:
Year | AGI | Deduction | Effective Rate | Tax Benefit |
2025 | $1,000,000 | $100,000 | 37% | $37,000 |
2026 | $1,000,000 | $95,000 | 35% | $33,250 |
That's a $3,750 difference — not dramatic on paper, but significant over multiple years or large gifts.
3. What Types of Giving Will Be Affected?
These new rules impact most itemized charitable deductions, including contributions made through:
- Charitable Remainder Trusts (CRTs)
- Charitable Lead Trusts (CLTs)
- Donor-Advised Funds (DAFs)
- Private Foundations
The only exception is Qualified Charitable Distributions (QCDs) directly from an IRA — still available for individuals age 70½ and older.
4. Who Should Act Before 2026?
- Donors with Ongoing Giving Commitments
If you make annual contributions to nonprofits, consider bundling several years of donations into 2025.
By pre-funding 4–5 years' worth of gifts, you avoid losing the 0.5% floor each year — which can easily add up to tens of thousands of dollars in missed deductions. - Investors with Concentrated, Appreciated Stock Positions
Establishing a CRT before the end of 2025 allows you to lock in current deduction rules. If you hold highly appreciated shares of companies like NVDA, GOOGL, or META, a Charitable Remainder Trust (CRT) can help you:Diversify without triggering capital gains
Generate income
Achieve both philanthropic and tax saving goals
- High-Income Families with Philanthropic Plans
If you're planning to create or fund a Private Foundation or Donor-Advised Fund (DAF), it's prudent to complete the funding before December 31, 2025.
This ensures your contributions remain fully deductible under the existing rules.
Key Takeaways
- 2025 is the last year to take advantage of today's favorable charitable deduction rules.
- From 2026 onward, the combination of a 0.5% AGI floor and 35% deduction cap will reduce the tax efficiency of giving.
- Act now — establish or fund your charitable vehicles before year-end to preserve full deduction value.
- If charitable intent and tax efficiency are both part of your planning goals, now is the time to coordinate with your financial advisor
Our Perspective
At Taurus Financial, we help clients integrate philanthropy into a comprehensive financial plan — aligning generosity with tax optimization, estate planning, and family legacy goals.
If you're considering charitable strategies such as a CRT, CLT, DAF or Family Foundation, or want to evaluate how the 2026 rules may affect your existing plan, our team can guide you through a customized analysis and implementation timeline.
📞Schedule a strategy session before year-end to explore your options: https://go.oncehub.com/Taurus.
Smart giving is good giving — and timing, as always, makes all the difference.