2026 Charitable Deduction Changes: What Your Largest Donors Lose, Worked for Three Donors

The 2026 charitable deduction changes take tax value away from exactly the donors who give the most. Starting with tax year 2026, the federal tax law signed in July 2025 (Public Law 119-21) makes two changes for donors who itemize, meaning donors who list their deductions instead of taking the flat standard deduction. The first rule, in Section 70425, disallows the first 0.5% of a donor's contribution base in charitable gifts each year. The second rule, in Section 70111, trims every itemized deduction for filers in the top 37% bracket so that a deducted dollar saves 35 cents of tax instead of 37. A development office cannot change either rule, and it must not give tax advice. It can understand the arithmetic well enough to know why a major donor might ask about timing this November, and to send that donor to their adviser.

What is the 0.5% floor on charitable deductions?

Section 70425 adds a new subparagraph to Internal Revenue Code section 170. In the statute's words, a charitable contribution "shall be allowed only to the extent that the aggregate of such contributions exceeds 0.5 percent of the taxpayer's contribution base for the taxable year." The contribution base is defined in section 170(b)(1)(H) as adjusted gross income computed without any net operating loss carryback. For nearly every individual donor, that means adjusted gross income, the income figure on the tax return before deductions. The rule applies to taxable years beginning after December 31, 2025, so gifts made in calendar 2026 are the first ones it touches.

The size of the floor scales with income, not with the gift. The Tax Foundation (Kraschel and York, November 2025) gives the example of a taxpayer with $200,000 of adjusted gross income and $10,000 of gifts, for whom the first $1,000 of giving is not deductible. Fidelity Charitable gives a second: a couple with $300,000 of adjusted gross income can deduct only the part of their gifts above $1,500.

Two details matter for how donors react. First, the disallowed amount usually cannot be saved for a later year. The statute's new section 170(d)(1)(C) says amounts disallowed by the floor are "carried forward only from years in which limitation is exceeded," meaning years in which the donor's gifts already run past the existing percentage-of-income ceilings. For a typical itemizer, whose gifts sit well under those ceilings, the amount lost to the floor is simply lost. Second, the floor does not reach donors who do not itemize. Section 70425(a)(3) of P.L. 119-21, titled "Coordination with deduction for nonitemizers," amends the non-itemizer rule, IRC section 170(p), so that deduction is figured "without regard to" the floor in subsection (b)(1)(I).

What is the 35-cent limit for top-bracket donors?

Section 70111 rewrites Internal Revenue Code section 68. For an individual, itemized deductions are "reduced by 2/37 of the lesser of" two amounts: the itemized deductions themselves, or the part of taxable income (with the itemized deductions added back) that exceeds the point where the 37% bracket begins. In plain terms, a filer in the 37% bracket keeps 35/37 of each itemized dollar, so the dollar saves 35 cents of tax instead of 37. The IRS describes it as "a limitation on the tax benefit from itemized deductions for those taxpayers in the highest tax bracket (37%)." The Tax Foundation states the same effect as "35 cents per dollar, rather than the 37 cents."

Two corrections to how the rule is often described. It is not a cap on charity alone. It covers every itemized deduction, including mortgage interest and state and local taxes. And it reaches only the 37% bracket, which in 2026 begins above $640,600 of taxable income for a single filer and above $768,700 for a married couple filing jointly, according to the IRS's 2026 inflation adjustments. A donor in the 24% or 35% bracket is untouched by Section 70111 and faces only the 0.5% floor.

What do the 2026 charitable deduction changes cost three donors?

The three donors below are fictional and the math is illustrative. Each profile assumes the donor already itemizes because other deductions, such as mortgage interest and state and local taxes, exceed the 2026 standard deduction of $16,100 for a single filer or $32,200 for a married couple (IRS, IR-2025-103). Each assumes the donor's income, and so their marginal tax bracket, is the same in both years, uses the 2026 brackets published by the IRS, and gives cash to a public charity. Real returns have more moving parts, which is why the donor's adviser, not the development office, runs the real numbers.

• Donor A is a single professional with $150,000 of adjusted gross income, taxed at 24% at the margin (the 2026 single 24% bracket runs from $105,700 to $201,775 of taxable income). Donor A gives $6,000 a year.
• Donor B is a married couple with $300,000 of adjusted gross income, taxed at 24% at the margin (the 2026 joint 24% bracket runs from $211,400 to $403,550). The couple gives $10,000 a year.
• Donor C is a married couple with $1,200,000 of adjusted gross income, well inside the 37% bracket, whose taxable income is above $768,700, so the full 2/37 reduction applies to their itemized deductions. The couple gives $50,000 a year.

For Donors A and B the only change is the floor. Donor B's $1,500 of disallowed gifts, taxed at 24%, would have saved $360. Donor C meets both rules. The floor removes $6,000 of deductions, which at 37% would have saved $2,220. The remaining $44,000 of deductions now saves 35 cents per dollar instead of 37, which costs another $880. Together Donor C's gifts save $15,400 of tax where the same gifts would have saved $18,500 under the rules before 2026, a loss of $3,100, or about 17% of the old tax value. On a single $1,000 gift above the floor, a donor in the 37% bracket now saves $350 where the same gift saved $370.