Generous in 2026? The IRS Changed How it Counts Your Gifts

By Johnathan Horman

Around this time every year, appeal letters start piling up on the kitchen counter… for a lot of St. Louis families, answering them is as much a part of the season as the Blues home opener. If your household gives generously and earns a high income, the gift you write in December 2026 may not deduct the way the same gift did a year ago.

The tax code changed how it counts generosity this year. The One Big Beautiful Bill Act, signed on July 4, 2025, rewrote several charitable deduction rules starting January 1, 2026. For high-income couples who itemize, two changes reach straight into your return: a floor that disallows the first slice of your giving and a cap on what each deducted dollar is worth. With about 12 weeks left in the year, there's still time to adjust.

The New Rules in Plain English

• A 0.5% floor for itemizers. Only charitable contributions exceeding 0.5% of your Adjusted Gross Income (AGI) are eligible for an itemized deduction.
• An effective 35% cap for top earners. Married couples filing jointly with taxable income above $768,700 (or $640,600 for single filers) remain in the top 37% marginal bracket, but the tax benefit of their itemized deductions is now capped at 35 cents on the dollar.
• A permanent 60% limit. Cash donations to public charities remain deductible up to 60% of AGI, while gifts of long-term appreciated stock stay capped at 30% of AGI.
• Only a modest break for non-itemizers. Taxpayers taking the standard deduction ($32,200 for joint filers) can now write off up to $1,000 in cash contributions ($2,000 for married couples filing jointly) directly against income. Note that gifts to donor-advised funds (DAFs) do not qualify for this non-itemizer deduction.

Where Does the Floor Hurt Most?

Because the 0.5% floor is pegged to your income, it scales upward alongside your earnings. A household with $500,000 in AGI loses the deduction on its first $2,500 of annual giving. At $3,000,000 in AGI, the first $15,000 in gifts provides no tax deduction. This floor becomes especially impactful in high-income years, such as when selling a business, real estate, or completing a large Roth conversion. Because these spike years often trigger the desire to give, aligning the timing of a major charitable contribution requires careful advance modeling.

5 Ways to Give Strategically Under the 2026 Rules

1. Bunch several years of giving via a DAF: A donor-advised fund allows you to claim an immediate tax deduction in the year you fund the account, while distributing grants to charities over time. Combining several years of giving into a single funding year means you absorb the 0.5% AGI floor only once. If you consider a DAF, bear these drawbacks in mind:
   • Donations are irrevocable: Once the assets are transferred, they are legally owned by the sponsoring organization and can’t be returned.
   • As the donor, you can only recommend the eventual grant to the charitable cause; you cannot “direct” it. The sponsoring organization must approve of it and has the ultimate final say.
   • There is no mandatory payout or schedule of payouts, though the sponsor may have policies governing inactivity of grants or recommendations. Be sure to inquire about these before you establish your DAF.

Hypothetical illustration: A married couple with $800,000 in AGI gives $40,000 annually. Over five years of steady giving, the annual $4,000 floor eliminates $20,000 in cumulative deductions. If they instead donate $200,000 in year 1, the 0.5% floor ($4,000) applies only once, allowing $196,000 to be deducted while charities receive grants on their normal schedule.

2. Donate appreciated stock instead of cash: Donating shares held longer than one year allows you to deduct the full fair market value while avoiding federal capital gains taxes (up to 23.8%). While the floor and cap still apply to the itemized deduction, they do not diminish the tax savings achieved by eliminating capital gains.
3. Utilize qualified charitable distributions (QCDs) after age 70½: A QCD transfers funds directly from an IRA to a qualified public charity (up to $111,000 per donor in 2026). Because QCDs are excluded from gross income entirely, they are not subject to the 0.5% floor or the 35% cap, and they can satisfy your required minimum distribution (RMD) when you enter your RMD years.
4. Pair major gifts with high-income years: Offsetting income in years with unusually high earnings maximizes the value of your deduction. Work with your CPA to model these scenarios, as deductions reduced by the 0.5% floor cannot be carried forward, though there are exceptions (check with your CPA).
5. Designate IRAs for legacy giving: Heirs pay ordinary income tax on inherited traditional IRA assets (and other than spouses, most must do so within 10 years), whereas qualified charities pay zero tax. With the federal estate tax exemption expanded under current law, income tax planning often takes priority over estate tax planning when structuring charitable bequests.

Bring Your Giving Into the Plan Before December 31

Charitable decisions ripple into your tax return and your estate plan at the same time, and when they're handled separately, a generous family can end up giving more and deducting less. At Correct Capital, our advisors work in collaborative pods and coordinate directly with your CPA and estate attorney, so your giving strategy fits the rest of your financial life. The one product we sell is trust.

Want to know how the 2026 rules affect your own giving before year-end? Schedule a planning meeting with our team by calling (314) 930-4015, emailing info@correctcap.com, or reaching out online. You can also learn more about what we do for you.

Frequently Asked Questions

Does the new 0.5% floor apply to qualified charitable distributions?

No. A QCD is excluded from your taxable income altogether, so neither the 0.5% floor nor the 35% cap touches it. For charitably inclined retirees over 70½, that makes QCDs a clean way to give in 2026.

Is a donor-advised fund still a good idea under the 2026 rules?

For many high-income families, it's more useful than before, because bunching several years of gifts into one contribution means absorbing the floor just once. Deciding how much to contribute, and which assets to give, works best with a fiduciary financial advisor who runs tax projections alongside your CPA.

How should I handle charitable giving in a year when my income spikes?

A higher income year raises the floor, so a routine-sized gift loses more of its deduction. A larger, bunched gift that year, or a gift of appreciated stock, may work better. An advisory team that coordinates your tax and estate planning can model each option before you write the check.

About Johnathan

Johnathan Horman is a Lead Financial Advisor and Retirement Plan Specialist at Correct Capital Management in Clayton, Missouri. He helps families and business owners invest with confidence, pairing an analytical approach with a calm, consistent commitment to simplifying the complex. He holds an MBA from Saint Louis University and a finance degree from Truman State University, is a registered investment advisor representative (Series 65, life insurance), and sharpened his skills in retirement planning and portfolio management at firms including Wells Fargo Advisors and Northwestern Mutual.

Disclosures: The opinions expressed in this program are for general informational purposes only and are not intended to provide specific advice or recommendations for any individual or on any specific security and are subject to change. It is only intended to provide education about the financial industry. To determine which investments may be appropriate for you, consult your financial advisor prior to investing. As always please remember investing involves risk and possible loss of principal capital; please seek advice from a licensed professional.

Correct Capital Wealth Management LLC is not a law firm and does not provide legal advice to clients. All Estate planning document preparation and other legal advice are provided through select third parties.

Correct Capital Wealth Management, LLC is a registered Investment Adviser registered with the U.S. Securities & Exchange Commission. Advisory services are only offered to clients or prospective clients where Correct Capital Wealth Management, LLC and its representatives are properly licensed or exempt from licensure. No advice may be rendered by Correct Capital Wealth Management, LLC unless a client service agreement is in place.