If you are a high-income donor who gives generously to charity and itemizes deductions on your tax return, there is an important opportunity you should know about.
Starting in 2026, new tax laws brought about by the One Big Beautiful Bill Act (OBBBA) may limit how much of your charitable giving can be deducted on your tax return. Specifically, the first 0.5% of your income will no longer count toward itemized deductions. For example, if your income is $1,000,000, the first $5,000 of charitable donations will not be eligible to use as a deduction. So, if your total donations for the year are $30,000 in 2026, you will only be eligible to include $25,000 as an itemized charitable deduction on your tax return.
Additionally, the maximum value of itemized charitable deductions will be capped at 35%,even if you are in a higher tax bracket. That means if you are in the top federal tax bracket (currently 37%) you will lose 2% of the value of your deduction starting next year. For example, if a donor has total itemized charitable deductions of $1,000,000 in 2025, the value of that deduction at the highest tax bracket (37%) would be $370,000. However, the exact same itemized charitable deduction of $1,000,000 in 2026 would have a value that is capped at 35%, or $350,000, even if the donor is in the 37% tax bracket.
Let’s look at an example that combines the two changes above to illustrate the potential impact of this strategy.
Lorenzo, a donor in the 37% tax bracket, has an annual income of $3,750,000. He was planning to give a $1,000,000 donation in 2026. Under the new rules, which begin in 2026, his deduction on his $1,000,000 donation would yield ~$343,400 in tax savings (coming from $981,250 of eligible itemized deductions after the 0.5% income floor, and at a capped rate of 35%). If Lorenzo decided to make the $1,000,000 donation in 2025, all else being equal, his donation would yield~$370,000 in tax savings (coming from $1,000,000 of eligible itemized deductions at his 37% tax rate). That is a difference of ~$26,600 in tax savings simply by making the donation in 2025 before the new tax laws go into effect.
One strategy is to “bunch” your donations - that is, make several years’ worth of charitable contributions in one year. With the tax laws coming into play in 2026, high-income donors may want to consider bunching donations for future years into the 2025 tax year before these new laws take effect. The key point to consider is that if you are not proactive with this strategy, future years of giving may have less of a tax savings element with the new laws coming into effect.
If you’re considering a significant charitable gift in the future, 2025 may be a goodtime to capitalize on the current tax laws. Further, you may consider the bunching strategy to take advantage of the current tax laws before the changes go into effect in 2026.
Written by:
Adam J.Legg, CFP®, CLU®, CAP®
WealthPlanner at ISTO Advisors, LLC
adamlegg@istoadvisors.com
