Washington News

A new year provides an excellent opportunity to consider plans for charitable gifts in 2026. There are a few new rules in 2026 that donors should be aware of related to charitable giving stemming from the One Big Beautiful Bill Act of 2025 (OBBBA). These rules should be carefully reviewed by donors and their ad visors as they impact nonitemizers and itemizers alike.

1. Nonitemizer Benefit – Taxpayers who take the standard deduction on their tax return are allowed an above-the-line charitable deduction for a gift of cash to a qualified nonprofit up to $1,000 for a single taxpayer or $2,000 for a married couple filing jointly in 2026 and subsequent years. The new above-the-line deduction is not available for gifts to donor advised funds (DAF) or supporting organizations (SO). This permanent nonitemizer deduction may be taken in addition to the standard deduction and enhanced senior deductions. As a reminder, charitable gifts over $250 must meet the contemporaneous written acknowledgement rules of Sec. 170(f)(8).

2. Changes for Itemizing Taxpayers – Taxpayers who itemize their deductions for tax purposes have two big changes in 2026. Taxpayers are encouraged to speak with a tax professional to understand how the tax changes may impact their 2026 tax return. There is a new 0.5% floor on charitable deductions for gifts beginning in 2026. The taxpayer will not be able to deduct charitable gifts for the first 0.5% of the contribution base. The contribution base for most taxpayers is their adjusted gross income (AGI). In addition to the 0.5% charitable floor, OBBBA imposes a limitation on itemized deductions. This limit will impact high income earners because for taxpayers in the 37% bracket, the maximum savings for itemized deductions will be capped at 35%. To apply this limitation, deductions are reduced by 2/37 of the lesser of: the total itemized deductions or the portion of income above the 37% threshold.

3. IRA Charitable Rollover — The IRS refers to the IRA charitable rollover as a qualified charitable distribution (QCD). An individual over age 70½ is permitted to make a direct transfer from his or her IRA custodian to a qualified charity up to $111,000 in 2026. The transfer is not included in taxable income. If the IRA owner is over age 73, the distribution may fulfill part or all the IRA owner’s required minimum distribution (RMD). If the donor elects to use their once-in-a-lifetime QCD to fund a charitable gift annuity or charitable remainder trust, the maximum in 2026 is $55,000. The QCD is beneficial for nonitemizers and itemizers, because it is not subject to the charitable floor or caps.

Since many individuals have invested their IRAs in stocks, bonds or other securities, it may be necessary for the IRA custodian to exchange the IRA stock or bond account for a money market fund prior to the distribution. Most IRA custodians require a QCD to be paid from a money market account or similar fund. With equities markets at high levels, some individuals may choose to transfer funds from equities to a money market fund early in the year to prepare for their IRA charitable rollover. Talk with your IRA custodian to determine the next steps to make a QCD.

The QCD must be to a qualified exempt charity and may be for a designated purpose or a field of interest fund. Transfers to donor advised funds or supporting organizations are not permitted. In addition, transfers may not be for a charity dinner or other event that involves a partial benefit to the donor. The entire QCD must be for a qualified charitable purpose.

Editor’s Note: The first month of the new year is a good time to make plans. In January, donors may wish to consider their options for charitable gifts in 2026 and plan accordingly with their advisors to ensure their charitable goals are met.