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.

Business, Medical and Charitable Mileage Rates in 2026

On December 29, 2025, the Internal Revenue Service (IRS) published Notice 2026-10 announcing the mileage rates for 2026. The business use rate increased by 2.5 cents to 72.5 cents per mile. Medical and moving expense rates are decreasing by one half of a cent to 20.5 cents per mile. Finally, the charitable mileage rate remains 14 cents per mile.

The mileage rate for medical care or for moving expenses is 20.5 cents per mile. The moving expenses rate is applicable for certain military and intelligence community members.

The standard rate for automobile travel to benefit a charitable organization remains 14 cents per mile. The organization must be a qualified exempt charity or a religious organization. Travel may also qualify if it benefits a foundation or trust that operates exclusively for charitable, educational, science or animal welfare purposes.

If a taxpayer wants to deduct charitable mileage, detailed records are required. The log should include the date, purpose, starting and ending location and number of miles driven. For example, if a taxpayer has a record of 1,000 charitable miles in 2026, he or she would multiply $0.14 by 1,000 and deduct $140. This would be an itemized deduction on Line 12 of Schedule A (Gifts to Charity other than by cash or check).

The deduction must be a direct result of volunteer activities for a qualified nonprofit. It is not permitted to take a deduction for any personal use. The deduction is not available if detailed records do not exist. It is key to maintain documentation or records for all charitable travel.

IRS Updates Determination Letter Procedures

On December 29, 2025, the Internal Revenue Service (IRS) released Rev. Proc. 2026-5 (Rev. Proc. 2026-5, 2026-1 I.R.B. 258), which updates the procedures for IRS determination letters for tax-exempt organizations, replacing Rev. Proc. 2025-5. The substantive scope and eligibility exclusions remain unchanged from Rev. Proc. 2025-5, but definitions and submission checklists have been updated to reduce processing delays.

The updated guidance governs applications for recognition of tax exemption under IRC Sections 501 and 521, private foundation status determinations and requests to modify or revoke prior letters. The guidance also addresses the steps necessary to exhaust administrative remedies before seeking declaratory judgment under Sec. 7428.

The revenue procedure specifies the forms and documentation required for initial exemption applications, including organizational documents and detailed descriptions of activities. It explains how to submit requests for changes to previously issued determinations, such as converting from public charity to private foundation status or correcting classification errors.

The guidance provides an outline of the administrative review process, including timelines and what constitutes as an exhaustion of remedies. Rev. Proc. 2026-5 includes an updated user fee schedule for all determination letter requests, which vary depending on the type of application and entity size.

The guidance emphasizes that electronic submissions are preferred and outlines when paper filings are also accepted. This revenue procedure serves as the primary reference for exempt organizations navigating IRS determinations under current rules.

Nonprofits should verify that their exemption applications are complete, accurate and include the appropriate fee before submission to avoid delays. Keep copies of all correspondence and determination letters for future reference and monitor IRS announcements for any changes in user fees or procedural requirements. When considering a modification or revocation request, consult with a qualified tax advisor to ensure proper handling under the updated rules.

Applicable Federal Rate of 4.6% for January: Rev. Rul. 2026-2; 2026-3 IRB 1 (15 December 2025)

The IRS has announced the Applicable Federal Rate (AFR) for January of 2026. The AFR under Sec. 7520 for the month of January is 4.6%. The rates for December of 4.6% or November of 4.6% also may be used. The highest AFR is beneficial for charitable deductions of remainder interests. The lowest AFR is best for lead trusts and life estate reserved agreements. With a gift annuity, if the annuitant desires greater tax-free payments the lowest AFR is preferable. During 2026, pooled income funds in existence less than three tax years must use a 4.0% deemed rate of return. Charitable gift receipts should state, “No goods or services were provided in exchange for this gift and the nonprofit has exclusive legal control over the gift property.”