The New Math of Charitable Giving Tax Deductions

What changed in 2026

Several changes took effect at the start of the year, and together they reshape how much a charitable gift can save you in taxes.

A new floor: If you itemize, you can now deduct charitable contributions only to the extent they exceed 0.5% of your adjusted gross income (AGI). The first slice of your giving no longer produces a deduction.

A cap on what itemized deductions are worth: For taxpayers in the 37% bracket, the tax benefit of itemized deductions, including charitable gifts, is now limited to the equivalent of a 35% rate. In practice, a dollar of deduction is worth 35 cents instead of 37.

A permanent 60% ceiling: The 60% of AGI limit for cash gifts to public charities is now permanent. That’s the good news — the higher limit that had been temporary is here to stay. For gifts of appreciated assets, the 30% of AGI limit still applies, which is one reason the choice of asset matters as much as the choice of vehicle.

A deduction above the standard: There’s also a change moving the other direction. Beginning in 2026, taxpayers who take the standard deduction can deduct up to $1,000 of cash gifts, or $2,000 for married couples filing jointly, on top of it. It’s a below-the-line deduction, so it lowers taxable income but not AGI, and gifts to donor-advised funds don’t qualify. Most Mercer Advisors clients itemize, so this one may not apply to you.

What the floor costs

Here’s how the floor works. A client with $400,000 in AGI gets no deduction on the first $2,000 of giving — that’s 0.5% of $400,000. Only giving above that threshold is deductible.

The first slice, by income

The 0.5% applies to your adjusted gross income, so the amount you can’t deduct rises with your income.

On its own, that’s a modest amount. What makes it worth planning around is that it applies every year you give.

Why bunching matters more now

Consider two donors who both have an AGI of $400,000 and each give $100,000 to the same charities over five years.

The first gives $20,000 a year. She’s above the floor every year, so she can claim a deduction, but she forfeits the first $2,000 of the deduction each year — $10,000 over five years.

The second puts all $100,000 into a single year and takes the standard deduction in the other four. She forfeits $2,000 of the deduction in only the single year she donated.

Same generosity, same charities, and an $8,000 difference in what she can deduct. That’s the case for bunching under the new rules, and it’s why the vehicle you bunch into — usually a donor-advised fund — could be more valuable than it was a year ago.

Watch your high-income years

The floor scales with your income, which creates a trap in a year when income spikes.

Sell a business, exercise a large block of options, or complete a sizable Roth conversion, which may affect your AGI. If it reaches $2 million, your floor that year is $10,000. Give your usual $25,000 and you’ve lost $10,000 of deduction rather than the $2,000 you’d normally forfeit if your AGI were still $400,000.

That amount may not be recoverable. Contributions disallowed by the floor can be carried forward only if your giving that year also exceeded one of the AGI ceilings.

So, in a high-income year, give generously or wait. Giving your usual amount is the costly middle ground.

One piece of good news: Carryovers from gifts you made before Jan. 1, 2026, aren’t subject to the new floor when you use them in later years.

More households may itemize again

Since 2018, most people have taken the standard deduction, which made the charitable deduction irrelevant to them. The higher cap on state and local taxes changes that for some households.

For 2026, the deduction for state and local taxes is capped at $40,400, up from $10,000 before 2025. Add mortgage interest and charitable gifts, and itemizing might make sense for households that had written it off. The higher cap phases down when modified AGI passes $505,000, though, and it never falls below $10,000.

The hurdle is the standard deduction itself: $32,200 for a married couple filing jointly in 2026, plus $1,650 for each spouse who is 65 or older. A couple who are both 65 or older needs to clear $35,500 before itemizing pays off. It’s worth running your own numbers rather than assuming last year’s answer still holds.

What gets more valuable

The new rules make certain strategies more valuable than they were before — not because giving changed, but because timing and vehicle matter more.

Bunching: Concentrating several years of giving into one year helps you clear the 0.5% floor only once and push your total deductions past the standard deduction. In off years, you take the standard deduction. Timing can be a factor in this strategy, and it may be beneficial to consider a donor-advised fund (DAF) as part of your investment plan. Donor-advised funds: A DAF lets you bunch contributions, take the deduction in the year you fund it, and then direct grants to the charities you care about over many years. The contribution is irrevocable — that’s what makes it deductible — but you keep the right to recommend where grants go and when. If you have a liquidity event, front-loading a DAF that year can be  beneficial as it could increase your 60% ceiling due to your higher AGI.

Appreciated securities: Giving long-term appreciated stock instead of cash can do double duty. You may deduct the full fair market value and avoid the capital gains tax you’d owe if you sold the shares first. Gifts of appreciated assets fall under the 30% of AGI limit rather than 60%, so a large gift may need to be spread across years. Shares that have lost value are better sold — take the loss, then donate the proceeds.

Qualified charitable distributions: If you’re 70 ½ or older, you can direct up to $111,000 in 2026 from your IRA straight to a qualified charity — or $222,000 for spouses who each own an IRA. A qualified charitable distribution (QCD) counts toward your required minimum distribution (RMD) and never enters your taxable income, which means it sidesteps the new floor and the 35% cap entirely.

The AGI reduction is the underrated part. A lower AGI can ease your Medicare premium surcharges, the 3.8% net investment income tax, and the phasedown of your state and local tax deduction. And while QCD eligibility starts at 70 ½, RMDs don’t begin until 73 — or 75 if you were born in 1960 or later. Gifts made during that gap shrink the IRA before distributions are required, which can lower your RMDs for years afterward.

Naming a charity as your IRA beneficiary: For giving that happens after your lifetime, this may be the most efficient move to consider. A charity pays no income tax on the IRA it receives. Your children would owe ordinary income tax on every dollar they withdraw, and most nonspouse beneficiaries have to empty an inherited IRA within 10 years. Leaving the IRA to charity while leaving other assets to your heirs can mean more for both parties. No floor, no cap, no ceiling.

How giving fits your broader plan

Charitable giving rarely stands alone. For many people it sits at the intersection of three or four planning disciplines, and the new rules make that coordination matter more.

On the tax side, the timing of a gift can be paired with a Roth conversion. If you’re converting pretax retirement funds in a high-income year, a deductible gift or a DAF contribution that same year can help offset the taxable income from the conversion. The 35% cap tempers the benefit for top-bracket taxpayers, and the bigger floor in a spike year cuts into it further, but the offset still works with a little more planning.

On the investment side, giving appreciated securities from a concentrated stock position can serve three goals at once: You reduce single-stock risk, avoid the capital gains tax on a sale, and direct the value to charity.

On the estate side, charitable vehicles can shape how wealth moves to the next generation. A DAF can become a family giving account that brings your children into decisions about where grants go. For larger or more complex situations, a charitable remainder trust can provide income during your lifetime and direct the remainder to charity while removing assets from your taxable estate. These structures carry costs and complexity, so they’re worth weighing alongside your estate planning attorney.

A few trade-offs to weigh

Every strategy has one. Bunching means larger gifts in some years and none in others, which may not match how the charities you support budget their year. A DAF carries administrative fees and an irrevocable contribution. Appreciated securities work only for long-term holdings. QCDs carry age and dollar limits, and the transfer has to go directly from your IRA custodian to the charity — a check made out to you doesn’t qualify. The right mix depends on your income, your bracket, and your goals.

The reframe

These rules change the timing and the vehicle, not the reasons. The tax benefit was always a companion to the giving, never the point.

What the new rules do is reward intentionality. A giving plan coordinated with your tax plan, your portfolio, and your estate plan can do more good — both for the causes you support and for your family’s financial picture — than scattered gifts made in late December.

Your year-end move

If you are charitably inclined, a giving review before Dec. 31 is worth your time. Look at your expected AGI, your deduction strategy, and the assets you hold. A few adjustments — timing a gift, choosing the right vehicle, or coordinating with your Roth or RMD strategy — can make a meaningful difference.

Then, in January, if you’re a client, we’ll take up the harder issue — and the more interesting one: not how to give, but what you’re giving toward. Defining a giving mission is what turns a set of tax-efficient transactions into a plan your family can carry forward.