New rules for how much you can deduct in charitable contributions

CNN

12 hours ago

If you regularly make donations to tax-exempt charities and non-profits, you should be aware of upcoming rule changes governing how much of your contributions will be deductible.
Some of the changes, which are in President Donald Trump's recently enacted federal tax-and-spending cuts package, affect filers who take the standard deduction. Others affect filers who itemize — which you do when your individual deductions combined exceed the standard.
Here's a rundown of some key changes that will take effect in 2026:
In the first two years of the pandemic, if you took the standard deduction on your federal income tax return, you also were allowed to deduct an additional $300 ($600 for married couples filing jointly) for charitable cash gifts you made. That special provision then expired.
But, starting in 2026 you will be allowed to deduct up to $1,000 in cash donations ($2,000 for joint filers).
'This applies only to direct cash gifts to qualifying 501(c)(3) charities — not donor-advised funds or private foundations,' said Tom O'Saben, director of tax content and government relations at the National Association of Tax Professionals.
Starting in 2026, those who itemize their deductions will — for the first time — be allowed to deduct their cash contributions only to the extent they exceed 0.5% of their adjusted gross income.
For example, say your adjusted gross income is $100,000. You will be allowed to deduct the amount of your total cash gifts minus $500 (0.5% of $100,000. So if you make $2,000 in cash contributions, you only will be allowed to deduct $1,500.
An existing rule that further limits itemizers will remain in effect: It sets a ceiling for how much you may deduct of your contributions to public charities in a given year. Specifically, you can't deduct the portion of your cash donations that exceed 60% of your AGI in the year you make them, O'Saben said. (The AGI limit is typically 30% for cash gifts made to donor-advised funds and private foundations, he added.)
But you may be able to deduct any cash gifts you made outside the allowable limits in the next tax year. That's thanks to another existing rule that lets itemizers carry forward their 'excess' contributions for five years and deduct them on future returns. The 'excess' is any portion of your cash donations that exceeds the AGI ceiling and, starting next year, falls below the new floor of 0.5% of AGI.
Say your AGI is $100,000 next year. You will be allowed to carry forward the first $500 of your cash gifts (0.5% x $100,000) plus any remainder of your donations above $60,000 (60% of your AGI).
Lastly, O'Saben noted, 'You cannot double-dip. If itemizing, you're not eligible for the $1,000/$2,000 deduction, as that's reserved for non-itemizers.'
The value of one's deductions for anyone whose taxable income puts them in the top tax bracket of 37% will be treated as if they were in the 35% bracket.
Here's how that will work: Say you itemize and are allowed to deduct $10,000 in cash donations after accounting for the new 0.5% of AGI rule above. Typically, the itemized charitable deductions will reduce your tax bill by an amount equal to your top tax rate multiplied by your deductible cash donations.
But if you're in the 37% bracket, you won't get the full $3,700 (37% x $10,000) in tax savings. You will reduce your tax liability by only $3,500 (35% x $10,000), O'Saben explained.
If you itemize, any non-cash contributions you make – such as clothes, food or household goods – are also subject to the new 0.5%-of-AGI floor.
If you're taking the standard deduction, you won't be able to deduct your non-cash contributions since the $1,000/$2,000 limit for non-itemizers applies only to cash gifts.