A gift in 2025 could be worth more than the same gift in 2026. For high-income donors and those with significant assets, understanding an impending tax law change is crucial for maximizing the impact of your charitable contributions and your corresponding tax deductions. A unique window of opportunity is open right now, but it’s closing fast.
What’s Changing in 2026
The tax landscape for charitable giving is set to shift significantly in 2026. This change is due to the reversion of certain provisions of the Tax Cuts and Jobs Act (TCJA) as they sunset. One of the most impactful changes for charitable giving is the introduction of a 0.5% Adjusted Gross Income (AGI) “floor” on all itemized charitable deductions.
This new floor applies to all itemized charitable deductions, regardless of whether they stem from new gifts made in 2026 or later, or from carryforwards of excess contributions from prior years. It affects both cash gifts, which currently have a 60% AGI limit, and gifts of appreciated assets, which typically have a 30% AGI limit.
The key point to grasp is this: the 0.5% floor reduces your deduction, not your gift. It’s a permanent reduction, meaning that portion of your potential deduction is simply lost and not recoverable.
How the 0.5% Floor Works
The 0.5% AGI floor operates as a threshold that must be met before your charitable deductions begin to count. Essentially, you will lose the ability to deduct an amount equal to 0.5% of your AGI. This applies annually and to any charitable carryforwards you utilize in 2026 or beyond.
For donors with lower AGIs or who make relatively smaller gifts, this can result in a disproportionately larger “haircut” on their deduction. For example, a $10,000 gift from someone with a $1 million AGI would lose $5,000 (0.5% of $1M) of its deduction, representing a significant 45% loss on that specific gift’s deductibility. For those with a large AGI, the absolute amount of the haircut can be substantial.
Here’s a table illustrating how the floor impacts various scenarios:
| AGI | Gift | Floor (0.5% of AGI) | Deduction Allowed | % of Gift Lost |
|---|---|---|---|---|
| $100k | $10k | $500 | $9,500 | 5% |
| $500k | $50k | $2,500 | $47,500 | 5% |
| $5M | $500k | $25,000 | $475,000 | 5% |
| $5M | $5M | $25,000 | $4,975,000 | 0.5% |
How Bunching Charitable Gifts in 2025 Can Help
2025 is the last year before the 0.5% AGI floor applies. This means that any qualified charitable contributions made in 2025 will allow for a full deduction (subject to existing AGI limits of 60% for cash and 30% for appreciated assets).
Furthermore, if your generosity in 2025 exceeds your AGI limits for the year, any excess gifts can be carried forward for up to five years. While the deduction for these carryforwards, if used in 2026 or later, will still face the 0.5% haircut, the crucial advantage is that the original gift itself avoids the new rule entirely. This strategy allows you to lock in the full deduction for the portion used in 2025 and preserve a higher potential deduction for future years compared to making those gifts directly in 2026 or beyond.
How to Execute a Smart Bunching Strategy
To make the most of this expiring opportunity, consider a bunching strategy:
- Project Your Giving: Begin by estimating your planned charitable contributions for the next three to five years.
- Make a Larger One-Time Gift in 2025: Consolidate several years’ worth of giving into a single, larger contribution made in 2025.
- Utilize Donor-Advised Funds (DAFs): DAFs are excellent tools for bunching. You can make a substantial, tax-deductible contribution to a DAF in 2025, receiving the full deduction that year. Then, you can recommend grants from your DAF to your favorite charities over the subsequent years, effectively spreading out your giving while capturing the full deduction upfront.
- Coordinate with Your Tax Advisor: Work closely with your CPA or financial advisor to ensure your aggregated gift in 2025 stays within your AGI limits to avoid wasting excess deductions. They can also help you understand the most tax-efficient assets to donate (e.g., appreciated stock).
Examples of Smart Giving in 2025
Here are a few scenarios illustrating how bunching can work:
- Cash Gift Maximization: If you have an AGI of $500,000 and typically give $50,000 annually, consider making a $300,000 cash gift in 2025. This allows for a full deduction in 2025 (within the 60% AGI limit), and you lose $0 to the 0.5% floor.
- Appreciated Stock Strategy: For an individual with a $1.5 million AGI who plans to give a significant amount of appreciated stock, a $1 million gift of appreciated stock in 2025 would allow you to deduct $450,000 (30% of $1.5M AGI) in 2025. The remaining $550,000 can be carried forward, still benefiting from avoiding the 0.5% haircut on the original gift amount.
- Long-Term Giving through DAFs: If you plan to give $20,000 per year for the next five years, you could bunch $100,000 into a DAF in 2025. You receive the full $100,000 deduction in 2025, and then grant out $20,000 annually from the DAF to your chosen charities over the next five years, effectively avoiding the future 0.5% floor on those annual contributions.
What Happens If You Wait Until 2026
If you postpone your significant charitable giving until 2026 or later, all your itemized charitable deductions will be reduced by 0.5% of your AGI annually. Even gifts that fall well within your AGI limits will be subject to this unavoidable haircut.
There is no add-back or recovery of the floor amount. Once lost, that portion of your potential deduction is gone. The only way to “offset” the impact of the haircut is to make a gift large enough to exceed your AGI limits, allowing you to carry forward the excess. However, even these carryforwards will face the 0.5% floor in the years they are utilized.
Planning Considerations
Maximizing your charitable impact and tax efficiency requires careful planning:
- Coordinate with Your CPA or Financial Advisor: They can provide personalized advice based on your specific financial situation, AGI, and charitable goals.
- Consider Income Timing: If you anticipate a particularly high-income year in 2025 (e.g., from a business sale or large bonus), it becomes an even more favorable year for substantial charitable contributions.
- Explore Giving Vehicles: Beyond DAFs, consider other charitable giving vehicles like private foundations or charitable remainder trusts (CRTs) to bundle giving and achieve specific philanthropic and financial objectives. For comprehensive support in navigating these complex strategies, consider partnering with a service provider like Crewe Foundation Services. They offer strategic design, secure funding, and ongoing administration for private foundations, supporting organizations, charitable trusts, and Donor-Advised Funds, helping you maximize “Tax-Smart Giving” and build a lasting philanthropic legacy.
Strategic Summary
2025 presents a rare and time-sensitive window for maximizing both your charitable impact and your tax efficiency. By strategically making significant contributions before the 0.5% AGI floor takes effect in 2026, you could save thousands in taxes and ensure more of your intended gift reaches your chosen causes. This is not a tax loophole, but rather an opportunity to leverage current tax law before it changes.
Don’t wait to review your charitable intentions. Start planning your charitable strategy now to avoid the 2026 deduction haircut and make your giving go further.
Take Action
- Contact your tax advisor or charitable planning consultant to discuss your options.
- Consider setting up a donor-advised fund or other giving vehicle. For expert assistance with the establishment and ongoing management of donor-advised funds, private foundations, or charitable trusts, reach out to Crewe Foundation Services to explore how their comprehensive support can benefit your philanthropic goals.
- Review your charitable intentions today and consider acting in 2025 to lock in optimal tax benefits.
