If you give generously and itemize, a charitable gift in 2026 is likely to save you less federal tax than the same gift did in 2025. Two new limits from the One Big Beautiful Bill Act apply for the first time this year. Charitable giving is one of the most common tax strategies for individuals with high incomes, so it is worth knowing what changed before you make a large year-end gift.
Two limits that start with the 2026 tax year
The first is a floor. According to Publication 505 for 2026, beginning in 2026, if you itemize, you can only deduct charitable contributions that are more than 0.5% of your adjusted gross income (AGI, your total income after certain adjustments but before deductions). On $800,000 of AGI, the first $4,000 of gifts produces no deduction.
The second is an overall limit on itemized deductions, under section 68 of the tax code. It is tied to the point where the 37% bracket starts. For 2026 that is $768,700 of taxable income on a joint return and $640,600 for single or head of household filers, per Rev. Proc. 2025-32. The test uses your taxable income before itemized deductions. The limit can apply even if itemizing brings your final taxable income below the 37% bracket.
Here is the math. Take your taxable income before itemized deductions and subtract the threshold. Your itemized deductions are then reduced by 2/37 (about 5.4%) of whichever is smaller: that excess, or your total itemized deductions. Publication 505's worksheet rounds the fraction to 5.4%. If a deduction comes off income taxed at 37%, the 2/37 cut leaves it saving 35 cents per dollar, which is where the common shorthand of a 35% cap comes from.
What the floor and the cap do not change
A few details matter as much as the headline numbers:
- The 2/37 cut applies to all of your itemized deductions, not only gifts. State taxes and mortgage interest are trimmed too.
- The floor comes first. Your gifts are reduced by 0.5% of AGI, then the section 68 limit applies to the itemized total.
- Gifts below the floor are generally lost, not carried forward. The exception is narrow, as explained below.
- If you do not itemize, a new deduction of up to $1,000, or $2,000 on a joint return, is available for cash gifts starting in 2026.
The 2026 Form 1040-ES instructions say the floor amount is added to any charitable carryover. Under section 170(d)(1)(C) of the tax code, that happens only when your gifts in the same year also exceed one of the annual percentage-of-AGI limits and create a carryforward. An unused carryover from an earlier year is not enough. The non-itemizer deduction is described in IRS Tax Topic 506. Gifts to a donor-advised fund generally do not qualify for it, per IRS Publication 6196.
A worked example: the same $60,000 gift, two years apart
Take an invented Torrance couple filing jointly with $900,000 of AGI, no qualified business income deduction, and $40,000 of other itemized deductions such as state taxes and mortgage interest. They give $60,000 in cash to a public charity. Their taxable income stays in the 37% bracket after all deductions.
| Federal effect of the $60,000 gift | 2025 rules | 2026 rules |
|---|---|---|
| Floor (0.5% of $900,000 AGI) | None | $4,500 |
| Gift after the floor | $60,000 | $55,500 |
| Section 68 cut (2/37) | None | $3,000 |
| Deduction from the gift | $60,000 | $52,500 |
| Federal tax saved at 37% | $22,200 | $19,425 |
The gift is identical, but the federal savings drop by $2,775, about 12.5%. Their $40,000 of other deductions loses another $2,162 to the same cut, worth about $800 of tax, which is why the total effect on a high-income return is larger than the gift alone suggests. The full 2/37 applies because their income before itemized deductions exceeds $768,700 by $131,300, more than their itemized deductions ($95,500 before the cut).
The $4,500 below the floor is generally gone for good here. Their $60,000 gift is far below the annual percentage-of-AGI limits, so it creates no carryforward for the floor amount to join. If your income before itemized deductions is at or below the threshold, only the floor applies. For a couple with $400,000 of AGI, it removes $2,000 of gifts from the deduction each year.
How California treats your gifts
The Franchise Tax Board's summary of federal income tax changes says California does not conform to the 0.5% floor, the new deduction for non-itemizers, or the federal change to the itemized deduction limit. Your California deduction is figured without them.
California has limits of its own, though. The 2025 Schedule CA (540) instructions cap 2025 charitable gifts at 50% of federal AGI. For 2025 they also reduce itemized deductions for joint filers with federal AGI above $504,411 by the smaller of 6% of the excess or 80% of certain itemized deductions. The FTB had not published its 2026 figures as of October 22, 2026. A large gift can therefore produce two different deductions, one per return, and both are worth modeling.
Ways to plan around the new floor
Because the floor applies every year, timing matters. Suppose the couple above planned to give $30,000 this year and $30,000 next year. At the same AGI, they would lose $4,500 to the floor in each year, or $9,000 in total. Giving $60,000 in one year means paying the floor once. Grouping gifts into one year like this is often called bunching. It works best when you itemize in the gift year anyway, and it only makes sense if the charity's timing works too.
Records matter more as gifts grow. Tax Topic 506 requires a bank record or a written receipt from the charity for any cash gift, whatever the amount. For any gift of $250 or more you also need a contemporaneous written acknowledgment from the charity that states the amount and whether you received anything in return.
Fitting giving into your tax strategies for individuals
Generosity should drive the gift, not the deduction. The deduction still decides what the gift costs you, and starting in 2026 that cost is higher for most itemizers. Run the numbers before a large year-end gift, alongside the rest of your year-end planning checklist.
Our team reviews charitable giving as one of several tax strategies for individuals, together with income timing and California differences. If you are planning a significant gift this year, Schedule a tax planning consultation and we will model what it is worth on both returns.
