For high-net-worth families and philanthropic donors, the last months of 2025 present a key opportunity to maximize charitable contribution deductions before the new rules from the legislation known as the One Big Beautiful Bill Act (OBBBA) impose limitations starting January 1, 2026.
While the fundamental benefits of strategic giving remain – including emotional fulfillment, a sense of purpose, and the ability to reduce taxable income, manage adjusted gross income (AGI), and advance philanthropic goals — the OBBBA introduces meaningful changes that could alter the timing and value of future deductions. That means there’s still time this year to make gifts that maximize tax benefits from the current law before the new thresholds and limitations apply.
How charitable contribution deductions work
Understanding how charitable tax deductions work is the foundation for optimizing your 2025 giving strategy.
Itemizing vs. standard deduction
Currently, taxpayers must itemize on Schedule A to claim charitable deduction gifts. Those claiming the standard deduction generally cannot deduct charitable donations, until 2026, when the OBBBA changes that.
Beginning in 2026, non-itemizers may claim an above-the-line deduction of up to $1,000 (single) or $2,000 (married filing jointly) for cash, check, and charged donations to public charities (not for non-cash property donations or funding donor-advised funds).
Tax tip: Charged gifts must be completed by Dec. 31 to count for the current tax year. Purchases of new property — including donated food items — are considered cash gifts, not non-cash property.
The new 2026 above-the-line charitable deduction, though modest, could broaden participation among smaller donors. But for now, 2025 remains the last year when bunching or front-loading larger contributions under existing, more favorable rules may yield you maximum tax benefits.
AGI limits and carryover rules
The 60% AGI limit for cash, check, and charged gifts to public charities is now permanent under OBBBA. Contributions of appreciated securities remain limited to 30% of AGI, while property gifts to private foundations typically cap at 20%.
Excess charitable deductions can still be carried forward for up to five years, an important tool for donors with multi-year giving strategies or large liquidity events in 2025.
This means that charity donations completed by the end of 2026 that result in carryover from AGI limitations can potentially be used through as late as 2030. Carryover amounts to 2026 will be subject to the new rules.
How much tax benefit can be obtained from charitable contributions?
Your income tax deduction depends on what you give, where you give, when you give, and — under OBBBA — how much you earn. Charity tax deduction limits by asset type are:
- Cash, check, and charged gifts to public charities: Up to 60% of AGI (now permanent).
- Appreciated securities: Up to 30% of AGI.
- Donations to private foundations: Up to 20% of AGI.
- Property or crypto donations: Generally limited to fair market value (FMV) if long-term held, or cost basis if short-term.
Tax tip: Using appreciated securities for donations brings additional tax benefits of not only receiving the full fair market value of the property, but also fully escaping realized capital gains if the property was sold first. FMV for securities is the average of the high and low values on the day of donation.
New OBBBA 0.5% AGI floor
Starting in 2026, only charitable contributions that exceed 0.5% of AGI will be deductible for itemizers. That means smaller donations may no longer count unless “bunched” into a single year. NOTE – the new AGI floor in 2026 does not apply to the above-the-line deductions mentioned earlier.
Year-end tip: Consider accelerating 2026 and future planned gifts into 2025 to take advantage of current deductibility rules before the OBBBA limitations go into effect. Cap on high-income deduction value
The OBBBA also limits the maximum deduction for top-bracket income earners in the top 37% tax bracket to 35%. For high-net-worth families already near the highest bracket, 2025 is the last opportunity to capture the full benefits before these changes take effect.
Maximize your charitable deductions using appreciated assets
Donating appreciated securities and other assets rather than cash is one of the most tax-efficient giving methods. You can deduct the full fair market value as of the date of the gift as well as fully avoiding IRS and State capital gains tax.
This valuable giving strategy remains unchanged and highly advantageous for donors.
When gifting complex assets like real estate, private business interests, or restricted stock gifts, it’s important to obtain proper valuations to support these donations. When structured correctly, these gifts can provide tax benefits, depending on individual circumstances, particularly before liquidity events.
Tax tip: Appraisals are an important component of supporting these gifts when property value exceeds $5,000 or more per asset type. Appraisals are not needed for securities listed on public exchanges, over-the-counter-market, mutual fund shares, and bonds.
IRS Form 8283 is used to support non-cash charitable donations, and is required when the total of all non-cash amounts exceeds $500 per year.
Donating cryptocurrency
Cryptocurrency donations remain subject to Form 8283 and qualified appraisal rules for gifts above $5,000. The IRS still treats crypto as property, so substantiation and ownership custody are key.
Donor-Advised Funds (DAFs) for bunching and flexibility
Under the new 0.5% AGI floor, bunching charitable deductions can become a more effective strategy. A donor-advised fund (DAF) lets you make a large gift in one year, claim the deduction immediately, and recommend grants later, with no time limitation for use.
This approach helps you exceed the new AGI threshold in 2026 and retain flexibility in donation timing.
Keep in mind that when comparing DAFs against private foundations, DAFs offer simplicity, anonymity, and low cost. Although foundations provide more control, they come with greater compliance obligations.
Tax tip: Foundations, though offering investment and beneficiary control, must apply for IRS 501(c)(3) status. They also require annual tax filings to maintain the non-profit designation.
Using Qualified Charitable Distributions (QCDs) to lower AGI
QCD rules remain unchanged under OBBBA — an important note for retirees.
- Eligibility: IRA owners age 70½ or older.
- Benefit: Amount donated directly to charity is excluded from taxable income, satisfying required minimum distributions (RMDs) while lowering AGI.
- QCD Limits for 2025: Up to $108,000 per taxpayer.
- QCD Limits for 2026: Up to $115,000 per taxpayer, adjusted periodically for inflation.
Because QCDs are excluded from income, they cannot be deducted as Schedule A charitable contributions. However, they remain a valuable AGI management tool that is not affected by the new law.
Tax tip: Inherited IRAs can be used as part of a QCD strategy, provided the beneficiary is age 70 ½ or older.
Planning moves for business owners and executives
For executives and entrepreneurs, 2025 may be an ideal time to contribute appreciated private stock or pre-IPO shares to charity before the OBBBA’s deduction caps reduce future benefits. Coordinate gifts with liquidity events and bracket management for maximum impact.
Some OBBBA provisions — like expanded qualified small business stock (QSBS) exclusions and qualified business income (QBI) deductions — could reduce taxable income, unintentionally limiting the value of charitable deductions. Donors should work with advisors to evaluate how these provisions interact.
State and estate tax angles
State-level charitable credits remain in play but are still subject to the IRS rule requiring the reduction of the federal deduction by any credit received. Pairing charitable remainder trusts (CRTs), charitable lead trusts (CLTs), or beneficiary designations with strategic giving continues to offer long-term estate and legacy planning value.
Documentation checklist to protect your deduction
Before year-end, ensure your 2025 donations meet documentation and substantiation requirements:
- Acknowledgment letters should be received for gifts of $250 or more.
- Form 8283 is required for non-cash contributions over $500.
- Qualified appraisals for gifts valued above $5,000.
- Verify organization eligibility using the IRS Tax Exempt Organization Search tool.
- Note the date of the gift for timing your 2025 deductions.
Putting it together: Why acting before year-end matters
The One Big Beautiful Bill Act will reshape how donors claim deductions. However, until 2026, the current, more favorable rules still apply.
Before December 31, 2025:
- Make large cash or appreciated stock gifts under the current 60% AGI limit.
- Use DAFs to bunch multi-year contributions now.
- Execute QCDs to manage RMDs and AGI.
- Consider complex-asset gifts ahead of OBBBA deduction caps.
- Using a Charitable Trust, such as a CRT (Charitable Remainder Trust), not only gives you an actuarially calculated charity donation, but also an annual income stream for cash spending needs.
By planning now, you can help capture full deductions and strategically position yourself for the next tax era.
FAQs |
| Does donating to charity reduce taxes? Yes! Charitable contributions to qualified organizations can lower taxable income through deductions if you itemize, or via QCDs if you’re eligible. Can you deduct charitable contributions without itemizing? How much charity is tax-deductible? What is the AGI limit for charitable contributions? What is the carry-forward rule for charitable deductions? What are the tax benefits of a donor-advised fund? How do QCDs work, and who qualifies? What is the QCD limit in 2025 and 2026? |
Charitable Contribution Deduction Rules – 2025 vs. 2026 at a Glance:
| Rule | 2025 Current Law | 2026 and Beyond (under OBBBA) | Planning Implications |
| Above-the-line deduction | None
(Must itemize to deduct charitable contributions) |
New: Non-itemizers can deduct up to $1,000 single/$2,000 joint for cash donations to public charities (not DAFs or property gifts) | Non-itemizers gain limited benefits; smaller donors may give more. |
| AGI floor for itemizers | No floor, the first dollar of giving is deductible | New: Only donations above 0.5% of AGI count | Incentivizes “bunching” multi-year gifts into one tax year. |
| AGI limit for cash gifts | 60% of AGI (extended temporarily) | Permanent: 60% AGI limit for cash gifts to public charities | Large donors gain long-term clarity. |
| Deduction value for top earners | Up to a 37% marginal rate | New cap: Deduction value limited to 35% | Slightly reduces benefit for ultra-high-net-worth taxpayers. |
| Carry-forward of excess contributions | 5-year carry-forward allowed | Unchanged under OBBBA | Still valuable for multi-year gift planning. |
| Qualified Charitable Distributions (QCDs) | Up to $108,000 per taxpayer (excluded from AGI; satisfies RMDs) | Unchanged under OBBBA | Continues to lower AGI for retirees. |
| Donor-advised fund (DAF) contributions | Fully deductible when funded, subject to AGI limits | Unchanged; not eligible for above-the-line deduction | Ideal for bunching before the 2026 AGI floor takes effect. |
| Complex assets (stock, real estate, crypto) | Deduct fair market value if long-term held; Form 8283 and appraisal required | The same requirements apply | 2025 is still an optimal year for large appreciated asset gifts. |
The charitable contribution deduction remains a cornerstone of tax-efficient philanthropy, but the tax landscape changes in 2026. Acting now, before December 31, 2025, can allow you to take advantage of today’s full deduction value and flexibility, while preparing for potential changes under the One Big Beautiful Bill Act.
If you’re not a Mercer Advisors client and you’d like to learn more about our tax planning and preparation services, let’s talk.
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