President Trump’s legislation enacted in July 2025 introduced significant modifications to the charitable deduction framework that will affect taxpayers differently depending on their income levels and filing status beginning in 2026.
For those who do not itemize deductions, the law creates a new charitable tax break worth up to $1,000 for single filers and $2,000 for married couples filing jointly. This benefit applies to cash contributions made to eligible tax-exempt organizations and represents an expansion of charitable giving incentives for taxpayers who previously received no tax benefit from smaller charitable donations.
However, the legislation introduced two substantial changes for households that do itemize their deductions. First, starting in 2026, a charitable deduction floor of 0.5% of adjusted gross income was implemented. This means taxpayers cannot claim a deduction for charitable contributions below this threshold. For a taxpayer with $400,000 in AGI, this would translate to a $2,000 floor, meaning the first $2,000 of charitable gifts would not qualify for deduction. An increase in income from sources such as asset sales, Roth conversions, or bonuses would raise this floor proportionally, potentially reducing the deductible portion of charitable contributions.
Second, the law caps the charitable deduction at 35% of the contribution’s value for taxpayers in the top 37% federal income tax bracket, effectively reducing the tax benefit for high-income donors. Combined with the floor mechanism, these changes necessitate more strategic planning around the timing and structuring of charitable contributions.
Financial advisors recommend several strategies to mitigate these impacts. Donor-advised funds allow taxpayers to make large gifts in a single year while distributing donations gradually thereafter, enabling a bunching strategy to exceed the deduction floor. Additionally, tax lot selection—strategically choosing which specific assets to donate—can optimize tax outcomes. Long-term capital gains assets offer greater deductions than short-term holdings, as donors can generally deduct the current fair market value rather than the original purchase price.
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