OBBBA Charitable Giving Strategies for High-Income Clients in 2026

The One Big Beautiful Bill Act (OBBBA) significantly curtailed the tax benefit of charitable deductions for high-income clients. Beginning in 2026, individual taxpayers face a new 0.5% AGI floor before any charitable deduction is allowed — meaning the first 0.5% of AGI in charitable giving generates no deduction — and a 35% benefit cap that limits the marginal tax value of charitable deductions for 37% bracket filers. On top of both restrictions, the 2/37 rule further reduces the effective value of all itemized deductions for taxpayers above the 37% bracket threshold (~$640,000 single / ~$768,000 MFJ in 2026). The net result: a client in the 37% bracket who gives $100,000 to charity now receives meaningfully less tax relief than the nominal 37% rate suggests — and in some cases, the standard deduction beats itemizing even for generous donors. CPAs need to model the new charitable deduction math and redirect affected clients toward giving vehicles that bypass these limitations entirely.

How the OBBBA Changed Charitable Deduction Math

Prior to OBBBA, IRC §170 allowed cash charitable contributions up to 60% of AGI with no floor (other than requiring itemizing to claim any deduction at all). High-income clients who itemized received a deduction worth their marginal rate — 37 cents per dollar for top-bracket taxpayers.

OBBBA amended §170 to impose two new limitations for high-income filers:

1. The 0.5% AGI Floor

The first 0.5% of AGI in charitable contributions generates no deduction. For a client with $1,000,000 AGI, the first $5,000 of charitable giving is non-deductible. This floor applies regardless of the taxpayer's bracket — it reduces deductible giving for any filer who itemizes, not only those in the 37% bracket.

2. The 35% Benefit Cap for 37% Bracket Filers

For taxpayers in the 37% bracket, the deductible value of charitable contributions is capped at 35 cents per dollar (not 37 cents). This cap interacts with the 2/37 rule: the 2/37 rule reduces total itemized deductions, and the charitable cap applies to the portion that remains.

Combined Limitation Example — MFJ Couple, $1,000,000 AGI, $80,000 in Cash Charitable Gifts

Verify this arithmetic against enacted statutory text and any IRS guidance issued on the interaction between the 0.5% floor, the 35% cap, and the IRC §68 2/37 rule before finalizing client projections.

Strategy 1: Qualified Charitable Distributions — The Only True Bypass

The strongest charitable giving tool under the new rules is the qualified charitable distribution (QCD), governed by IRC §408(d)(8). A QCD allows an IRA owner who is age 70½ or older to transfer funds directly from a traditional IRA to a qualifying public charity — up to $108,000 per taxpayer per year in 2026 (indexed annually for inflation from the SECURE 2.0 baseline).

Why QCDs sidestep all OBBBA limitations:

• The QCD is excluded from gross income, not claimed as an itemized deduction. Because it never enters AGI, it is not subject to the 0.5% floor, the 35% cap, or the 2/37 rule.
• It satisfies the required minimum distribution (RMD) obligation dollar-for-dollar before the remainder of the RMD is taxable.
• The lower AGI also reduces exposure to IRMAA surcharges, net investment income tax, and Social Security benefit taxation — compounding the benefit.

QCD planning checklist:

• Client must be age 70½ or older at the time of the distribution (not just at year-end)
• The distribution must go directly from the IRA custodian to a qualifying §501(c)(3) public charity — donor-advised funds, supporting organizations, and private foundations do not qualify (IRC §408(d)(8)(B))
• For MFJ couples where both spouses are 70½+, each spouse can make up to $108,000 in QCDs from their own IRA, for a combined $216,000
• Clients who are charitably inclined and have RMD obligations should route at least the RMD amount through a QCD before triggering additional income

For clients with significant IRA balances who also have charitable intent, the QCD is a permanent strategy that becomes more valuable — not less — under the OBBBA charitable deduction limitations.

Strategy 2: Accelerate Giving Into 2025 — The Closing Window

The OBBBA limitations on charitable deductions take effect for tax years beginning after enactment. For most individual clients, this means 2025 is the last year that cash charitable contributions receive the unrestricted 37% benefit.

Front-loading vehicle: the donor-advised fund (DAF)

A donor-advised fund allows a client to make a large irrevocable contribution in 2025 — capturing the full 37% deduction on cash or appreciated assets in the year of contribution — while distributing grants to specific charities over multiple future years (months, years, or even decades).

• The deduction is taken in the year the assets are contributed to the DAF sponsor, not in the year grants are distributed
• Cash contributions to DAFs are deductible up to 60% of AGI (IRC §170(b)(1)(A)); appreciated securities are deductible at FMV up to 30% of AGI
• Any excess contribution above the AGI limit carries forward for five years (IRC §170(d)(1))

Accelerated 2025 strategy — MFJ couple, $900,000 income, normally gives $60,000/year:

Instead of giving $60,000 annually for 2025, 2026, and 2027, they contribute $180,000 to a DAF in 2025. The 2025 deduction at 37% is worth $66,600 in tax savings — versus giving $60,000 in 2026 under the new rules, which after the 0.5% floor, 35% cap, and 2/37 reduction might yield approximately $18,000–$19,000 in savings. The three-year acceleration into 2025 captures substantially more value.

See Standard Deduction vs. Itemized Deductions for the break-even analysis on whether itemizing still beats the 2026 OBBBA-enhanced standard deduction ($16,000 single / $32,000 MFJ) after the new floor and cap.

Strategy 3: Donate Appreciated Securities — Still Worth It

Donating appreciated securities directly to a §501(c)(3) charity (or to a DAF) avoids capital gains tax on the embedded appreciation while generating a deduction equal to the full fair market value — subject to the 30% AGI limit for appreciated property donations (IRC §170(b)(1)(C)).

Why this strategy survives the OBBBA changes:

• The capital gains avoidance component is not touched by the charitable deduction limitations. A client with stock purchased at $10,000 now worth $100,000 avoids $90,000 × 20% = $18,000 in capital gains tax regardless of whether the deduction is worth 37 cents or 35 cents per dollar.
• The combined benefit (FMV deduction + capital gains avoidance) often outperforms selling the stock and donating cash, even under the 35% cap.
• Carryforwards of the 30% AGI limit give clients flexibility to spread large appreciated-property gifts across multiple years.

Practical note: The 0.5% AGI floor applies to the full deductible amount, not just the gain portion. For a client with $1,000,000 AGI donating $200,000 of appreciated stock, the floor disallows $5,000 of the deduction — still a small fraction of the total charitable benefit.

Strategy 4: Charitable Remainder Trusts for Large-Gift Clients

A charitable remainder trust (CRT) provides a partial charitable deduction in the year of funding, an income stream to the donor or beneficiary during the trust term, and the remaining principal passes to charity at termination. The upfront deduction is based on the present value of the remainder interest.

When a CRT makes sense under OBBBA:

• The deduction is spread over time through the present-value calculation rather than taken dollar-for-dollar at funding — this can reduce the portion subject to the 35% cap and 0.5% floor if properly structured
• CRTs work particularly well for clients with large appreciated assets (real estate, privately held stock before a liquidity event) who want to diversify without triggering capital gains
• The unitrust variant (CRUT) allows for variable income and is more flexible than the annuity trust (CRAT)

Clients funding a CRT with appreciated assets before a business sale or liquidity event should coordinate with legal counsel on the specific trust structure; the IRS requires CRT income to be distributed in a defined order under the tier rules of IRC §664(b).

Strategy 5: Model the Standard Deduction vs. Itemizing Break-Even

The 2026 OBBBA-enhanced standard deduction — $16,000 (single) / $32,000 (MFJ) — combined with the 0.5% AGI floor and 35% cap means that some previously itemizing clients will find the standard deduction wins even in charitable-giving years.

Clients most likely to shift to the standard deduction in 2026:

• Clients with moderate income (~$500,000–$700,000) who rely on SALT and modest charitable giving to clear the itemized threshold — the $40,000 SALT cap (phasing out above $500,000 MAGI) and the charitable floor together may no longer provide enough to itemize
• Clients who previously itemized solely because of state income taxes in high-tax states and whose PTET elections eliminate the need to include those taxes on Schedule A

For clients who will not itemize in 2026, the QCD becomes the only mechanism that delivers any tax benefit for charitable gifts. DAF bunching every two or three years (itemize in the contribution year, take the standard deduction in between) remains viable for clients near the break-even line.

See the SALT cap planning guide for how the $40,000 cap phase-out at $500,000 MAGI intersects with itemized deduction planning.

2025 Year-End Action List for CPAs

Before December 31, 2025:

1. Model each high-income client's 2025 vs. 2026 charitable deduction value — compare 37% × gross gift (2025) against (35% × (gift − 0.5% AGI floor) × 2/37 adjustment) (2026)
2. Recommend DAF funding in 2025 for any client who plans to give $50,000 or more over the next two to three years
3. Identify clients age 70½+ with IRA balances — set up QCD direct transfers to their preferred charities before December 31; ensure RMD obligations are met through QCDs first
4. Audit appreciated securities holdings — identify positions with large embedded gains suitable for direct charitable donation or DAF contribution in 2025 before year-end
5. Evaluate CRT feasibility for clients with pre-liquidity event appreciated assets or concentrated positions planning for post-sale philanthropy

FAQs: Charitable Giving Under OBBBA

Does the 0.5% AGI floor apply to QCDs?

No. QCDs are excluded from gross income entirely under IRC §408(d)(8) — they are not itemized deductions and therefore are not subject to the 0.5% AGI floor, the 35% benefit cap, or the 2/37 rule. The QCD exclusion from income applies regardless of whether the taxpayer itemizes.

Can I still carry forward charitable contributions that exceed the AGI limit?

Yes. IRC §170(d)(1) allows unused charitable contribution deductions to be carried forward for up to five tax years. However, carryforwards claimed in future years are subject to the OBBBA limitations (0.5% floor, 35% cap) in the year they are claimed. Front-loading contributions into 2025 to maximize the 37% deduction is preferable to making large contributions in 2026 and carrying forward the excess.

Do DAF contributions bypass the 0.5% AGI floor?

No. Contributions to a donor-advised fund are deductible in the year of contribution under the normal IRC §170 rules, including the 0.5% AGI floor. However, the front-loading value — locking in the 2025 unrestricted 37% rate on a large gift while distributing grants over multiple years — is the primary DAF planning benefit, not a bypass of the floor.

What is the QCD limit for 2026?

The QCD limit is $108,000 per taxpayer per year in 2026, indexed annually for inflation. For married couples where both spouses are age 70½ or older and each has an IRA, each spouse can make up to $108,000 in QCDs, for a combined $216,000. The limit is per-taxpayer, not per-couple.

Does the OBBBA charitable deduction cap affect private foundations?

The 35% benefit cap applies to charitable deductions by individual taxpayers, including contributions to private foundations (subject to the separate 30% AGI limit under IRC §170(b)(1)(D) for private non-operating foundations). The combined effect of the lower AGI limit and the 35% cap makes private foundation contributions less efficient than QCDs or DAFs for many high-income clients.

Can a charitable remainder trust avoid the new OBBBA limitations?

The upfront deduction for funding a CRT is the present value of the charitable remainder interest and is still subject to the 0.5% AGI floor and 35% benefit cap in the year of funding. However, because the deduction is typically a fraction of the total contribution amount (the remainder interest, not the full funding amount), the floor and cap apply to a smaller base than a direct gift of the same amount would generate.

Is it still worthwhile to donate appreciated stock if the deduction cap is 35%?

Generally yes. The primary benefit of donating appreciated securities is avoiding capital gains tax on the embedded appreciation — which is unchanged by the OBBBA. A client with $100,000 of stock (basis $10,000) still avoids $90,000 × 20% = $18,000 in capital gains tax regardless of whether the charitable deduction is worth 37% or 35%. The net benefit remains substantially positive.

Where can I learn more about the full range of OBBBA deduction changes?

See our detailed guide on how the OBBBA 2/37 rule affects all itemized deductions for mechanics, examples, and strategies beyond charitable giving, including SALT, mortgage interest, and income management techniques to stay below the 37% bracket threshold.

Arvori helps CPAs model complex OBBBA scenarios for high-income clients — including charitable giving projections, DAF front-loading analysis, and QCD optimization. Learn more about Arvori's tools for tax professionals.