Make the Most of Your Giving: Charitable Planning Strategies for Year-End 2026

As the end of the year approaches, charitable giving becomes top of mind for many. While a primary driver of charitable giving is, undoubtedly, the social impact, there are also income tax benefits to the donor. We summarize some of these benefits and related considerations here.

Federal Charitable Deduction Rules

Under federal tax law, a taxpayer may generally deduct charitable contributions for income tax purposes. This deduction is not unlimited but is capped in several important ways. The amount deductible equals (i) the value of the contribution, subject to (ii) a percentage limitation. First, the value of the contribution is determined under the tax rules: in some instances, it is the fair market value of the contributed assets, and in others, it is limited to the taxpayer’s adjusted basis in those assets. Second, the percentage limitation is effectively a ceiling on the aggregate charitable deductions allowed to the taxpayer, measured as a percentage of a taxpayer’s “contribution base,” roughly equivalent to the taxpayer’s adjusted gross income, or AGI. The percentage limitation is meaningful primarily for people who itemize their deductions and who donate a large portion of their income to charity.

The value of the contribution and the percentage limitation both vary by (a) the type of asset contributed and (b) the type of organization receiving the contribution.

Tax law broadly recognizes two categories of charitable organizations – public charities and private foundations – distinguished by their sources of support. Public charities draw support from broad segments of the population or engage in certain specified activities, while private foundations typically have a narrow base of support, such as a single individual, family, or company. Common types of public charities are churches and other religious organizations, hospitals, educational institutions, and other organizations with wide donor bases. Contributions to donor advised funds, or DAFs, generally are treated as contributions to public charities, as the sponsoring organization of a DAF will usually be a public charity, as are contributions to a small subset of private foundations known as “operating” private foundations, which use their funds directly to conduct charitable activities. References to private foundations below assume a non-operating, or “grantmaking,” private foundation.

The following table shows the contribution value and percentage limitation by type of asset and recipient organization. Contributions to public charities generally receive more favorable tax treatment than contributions to private foundations.

The percentage limitations do not layer on top of one another: a taxpayer cannot deduct 60% of AGI for cash contributions, plus 30% of AGI for contributions of long-term capital gain property, for a total deduction of 90% of AGI. Instead, charitable contributions are deducted against income in a specified order, with contributions earlier in the order “using up” the total available deduction. For the ordinary gifts discussed in the table, qualifying cash contributions generally have the highest percentage limitation, at 60% of AGI, subject to coordination with other gifts and the new charitable-deduction floor and ceiling (described below).

As indicated above, gifts of appreciated property are subject to a lower percentage limitation than gifts of cash; however, a gift of appreciated property typically avoids realizing the built-in gain as income, and so gifts of appreciated property can nevertheless be a powerful planning tool. Generally, charitable contributions not deductible in a particular tax year due to the percentage limits may be carried forward for up to five years.

Changes to the Federal Charitable Deduction with OBBB Beginning in 2026

The One Big Beautiful Bill Act, or OBBB, enacted last year, limits the tax benefit of itemized deductions (including charitable deductions) for taxpayers in the top 37% bracket. For these taxpayers, the OBBB caps at 35% the tax benefit an individual can enjoy for itemized deductions. For example, a $100 itemized deduction claimed by an individual in the 37% bracket would reduce federal tax by only $35, not $37.

In addition, the OBBB made two important changes specifically to charitable contribution deductions.

First, the OBBB expanded a temporary provision from 2021 to allow non-itemizers (i.e., taxpayers who use the standard deduction) to claim charitable deductions for qualifying cash contributions up to $1,000 for single filers (or $2,000 for married couples filing jointly).

Second, for itemizers, the OBBB created a floor so that an itemizer will only be able to claim a charitable tax deduction to the extent that the taxpayer’s charitable contributions exceed 0.5% of the taxpayer’s AGI. For example, a couple who itemizes with adjusted gross income of $1,000,000 can only deduct charitable donations in excess of $5,000.

The new floor means that high income individuals contemplating charitable gifts might consider lumping gifts together into a single taxable year, rather than spreading them across many years. However, taxpayers should remain aware that the percentage limits described earlier still apply, as well as the 35% cap relevant to taxpayers in the top bracket.

IRA Charitable Rollovers and Gift Annuities

A qualified charitable distribution, or QCD, often called an IRA charitable rollover, provides another tax-advantaged way to make charitable contributions. Because the tax benefit comes from excluding an IRA distribution from income rather than claiming a deduction, the benefit is available whether or not a taxpayer itemizes.

An IRA owner who has reached age 70½ may make a QCD by directing a payment from an eligible IRA to a qualifying public charity. Donor advised funds and supporting organizations are not eligible recipients under the ordinary QCD rules. No charitable deduction is available for a QCD, but none is needed, as a QCD is not included in the donor’s income in the first place. This means that the benefit of a QCD is not tied to any of the limitations on charitable deductions described above. A QCD does, however, count toward the donor’s required minimum distributions, which would otherwise have to be distributed from the IRA and generally would be taxable to the IRA owner. This makes the rollover a particularly effective planning tool. The maximum QCD amount for 2026 is $111,000, and this amount is indexed for inflation.

A separate, limited one-time election permits certain distributions to qualifying split-interest arrangements, including charitable gift annuities. This amount is limited to $55,000 in 2026. A charitable gift annuity allows a donor to make a gift to charity in exchange for a stream of fixed payments for one or two lifetimes. For a gift annuity funded not by IRA distributions, the donor may qualify for an income tax charitable deduction for the amount given to charity, reduced by the actuarial value of the annuity. In all events, charitable gift annuities are relatively simple to establish, and payments are backed by the charity’s assets.

State Charitable Deduction Rules

Since 2023, Massachusetts taxpayers have also been able to claim a charitable deduction on their state income taxes. The Massachusetts deduction is available even if a taxpayer does not itemize for federal purposes. The amount deductible for state purposes is the amount deducted (or that would have been deducted, if itemizing) for federal purposes (including carryforward deductions), except that: (i) the value of donated household goods and used clothes is excluded, and (ii) the OBBB’s 0.5% floor does not apply. However, unlike the federal deduction, the Massachusetts charitable deduction may be applied against only a subset of income, specifically Part B income, which excludes most interest, dividends, and capital gains.

New York taxpayers may also claim a charitable deduction based on the federal charitable deduction (including carryforward deductions), but subject to significant limitations: taxpayers with over $1 million but not more than $10 million of income can deduct only 50% of the amount deductible for federal income tax purposes, and taxpayers with income over $10 million can deduct only 25%. Like Massachusetts, the New York deduction is available to taxpayers whether or not they itemize on their federal income tax returns; if a taxpayer does not itemize on their federal returns, their New York state deduction is based on the deduction that would have been available had they done so. New York City follows New York State’s charitable deduction rules, as city taxable income is generally the same as state taxable income.

Other jurisdictions with or near Goulston & Storrs offices take different approaches to the state income tax charitable deduction. Connecticut and New Jersey do not allow for a charitable deduction, as they typically do not allow federal itemized deductions. In contrast, the District of Columbia, Maryland, and Virginia generally follow federal charitable deduction rules, but taxpayers must itemize deductions on their federal returns to claim a charitable deduction on their state or District returns. The District of Columbia and Maryland also impose additional limits on deductions for high-income taxpayers.