Charitable Giving Tax Changes in 2026: How High-Income Donors Can Save More by Acting

At VIP Wealth Advisors, we believe wealth isn't just about accumulation, it's about intention. One of the most intentional acts a high-net-worth individual can make is to give generously. But starting in 2026, the tax code will quietly make generosity less tax-efficient unless you act now.

Buried within what former President Donald Trump has dubbed his "big beautiful bill," a sweeping tax package set to take effect after 2025, are two significant changes to how charitable deductions work for high-income earners. These changes might sound technical, but their impact is very real. And if you plan to give to charity, these rules could cost you thousands in lost deductions if you wait too long.

Let's break down what's changing, why it matters, and the innovative strategies you can implement in 2025 to maximize both your giving and your tax benefit.

Starting January 1, 2026, two provisions kick in that reduce the value of the charitable deduction for higher earners:

Under current law, every dollar you donate to a qualified charity is generally deductible if you itemize (up to annual limits based on AGI and asset type). But starting in 2026, you'll only be able to deduct the portion of your charitable contributions that exceeds 0.5% of your Adjusted Gross Income (AGI).

For example, if your AGI is $2,000,000:

• The first $10,000 of your donations ($2,000,000 × 0.5%) will not be deductible.
• Only the amount above that $10,000 floor will count toward your itemized deduction.

If you're in the 37% federal tax bracket, roughly those earning over $626,351 (single) or $751,601 (married filing jointly) in 2025, your charitable deduction will also be reduced by a fixed percentage starting in 2026.

Specifically, your deduction will be reduced by 2/37, or approximately 5.4% of the allowable deduction after applying the 0.5% floor.

This is not a phase-out like we saw under the old Pease limitation, it's a flat haircut targeted directly at wealthy donors.

Let's take a look at how this plays out with different numbers.

Meet Jessica and David, married professionals living in Florida with a combined AGI of $2.5 million. They're in the 37% tax bracket and are long-time supporters of educational and health-related nonprofits. They plan to donate $250,000 in 2025 or 2026.

• There's no 0.5% floor
• There's no 2/37 haircut
• The entire $250,000 is deductible
• Tax savings = $250,000 × 37% = $92,500

• 0.5% of $2.5M AGI = $12,500 (non-deductible)
• Deductible amount before cap = $250,000 – $12,500 = $237,500
• Apply 2/37 cap: $237,500 × (2/37) ≈ $12,837.84
• Final deduction = $237,500 – $12,837.84 = $224,662.16
• Tax savings = $224,662.16 × 37% ≈ $83,124

📉 Total Difference in Tax Benefit = $92,500 – $83,124 = $9,376
That's almost $10,000 of lost tax savings for making the same gift just one year later.

Some will say: "What's a $10,000 difference if I'm donating a quarter-million dollars?" That misses the point.

At VIP Wealth Advisors, our clients don't squander opportunity, and that's precisely what this is: a narrow, time-sensitive window to optimize. Charitable giving is an act of purpose, and that purpose includes knowing how to structure your generosity tax-efficiently so that you can give more, not less.

These changes reduce the leverage of charitable giving. You're still doing good, but you're doing it at a higher cost unless you act while the current rules are still in effect.

If you're planning to make gifts over the next few years, accelerate them into 2025. This strategy is called "bunching," and it's especially useful for taxpayers who itemize in some years and take the standard deduction in others.

Rather than giving $50,000 per year for five years, consider giving the full $250,000 this year to lock in full deductibility.

Don't know where you want the money to go yet? No problem.

A DAF allows you to take a full deduction in 2025, even if you don't distribute grants to charities until later. Think of it as your personal charitable "checking account" - funded upfront, distributed over time.

At VIP Wealth Advisors, we help clients fund their DAFs with appreciated securities, avoiding capital gains tax and maximizing the deduction. You get:

• A full fair market value deduction
• No capital gains tax on the appreciation
• A streamlined platform to manage future gifts

Charitable giving doesn't have to be cash.

Highly appreciated stock, restricted stock, even private business interests, or crypto can be donated to public charities or DAFs. In many cases, donating these assets directly provides a bigger benefit than selling and gifting cash.

Strategic giving isn't limited to income taxes. Gifts made in 2025 may also help reduce estate tax exposure, especially for clients with taxable estates above the 2025 federal exemption of $13.61 million per person (which drops significantly in 2026).

Combine charitable planning with trust structures, family foundations, or charitable remainder trusts for even more impact.

Beginning in 2026, there's a new above-the-line deduction for small charitable cash gifts; $1,000 for singles, $2,000 for married couples filing jointly.

This is a revival of a temporary COVID-era tax benefit, but with a lower ceiling. For most of our clients, it's not relevant - since they'll still itemize deductions and give at scale. But for adult children or lower-income family members, it's worth noting.

Here's what to do before December 31, 2025: