A 0.5%-of-AGI charitable deduction floor takes effect in 2026, and bunching offsets it

The last weeks of 2026 will decide whether many clients bunch five years of giving into one, because two new limits on the charitable deduction take effect with that tax year and the smaller of the two will show up on far more returns. Under the One Big Beautiful Bill Act, passed in 2025, a taxpayer's charitable deduction is reduced by 0.5% of adjusted gross income, and if the year's contributions do not clear that line the deduction falls to zero. The second limit reduces cumulative itemized deductions by 2/37ths, but only for taxpayers whose taxable income, before itemized deductions, sits above the threshold for the top 37% federal bracket. Kitces' Nerd's Eye View lays out both rules and, more usefully for anyone staring down a December pledge calendar, the moves that keep a client's deduction intact.

Both limits leave the deduction in place and shave its value, rather than restricting which gifts qualify. For years the code allowed a deduction for charitable contributions subject to ceilings set by the type of property contributed and the type of organization receiving it; within those ceilings, a contribution reduced taxable income dollar for dollar. The new rules change the size of the benefit rather than its availability, and Kitces is careful to frame the overall effect as slight — the relative impact of the two limits is not large enough to meaningfully change many individuals' giving plans.

The floor is measured against income rather than against the gift, and that is what makes it awkward at the desk. It applies per return, per year, so a household that gives steadily pays the same toll every year while a household that gives once every several years pays it once. Multiplying any client's AGI by 0.5% gives the deduction they forfeit before the first dollar reaches the itemized-deduction line. A client with $500,000 of AGI who writes a $2,000 check has made a gift and taken no deduction; the same client giving $25,000 deducts $22,500. Kitces notes the boundary case the arithmetic produces: where total contributions for the year do not exceed 0.5% of AGI, the deduction is reduced to zero.

Then there is the 2/37ths factor, which behaves differently because it runs against cumulative itemized deductions rather than against charity alone, and only on returns above the top-bracket threshold. A charitable contribution is an itemized deduction, so it sits in that base alongside everything else the client deducted, and the reduction turns a 37-cent deduction into one worth about 35 cents. For a top-bracket client the two rules land on the same gift: the first 0.5% of AGI in contributions carries no deduction at all, and the marginal deduction on a charitable dollar is roughly 35 cents rather than 37.

Because the floor is a percentage of income, it bites hardest where income is largest, and Kitces draws out what follows. For gifts of smaller sizes, a higher-income taxpayer can end up with less hard-dollar tax benefit than a lower-income taxpayer who sits in a lower bracket; the relationship reverses as the gift grows. The analysis finds the tax benefit of giving climbing steadily in favor of the higher-income household once the contribution is large enough to clear the floor with room to spare. Kitces' conclusion is that the new limits do not discourage charitable contributions at the top of the income scale so much as they reward larger contributions there — the opposite of what a floor on a deduction sounds like it should do.

That puts the planning on the calendar. Bunching several years of contributions into a single tax year means the 0.5% floor is paid once instead of annually, and a donor-advised fund is what makes that practical: the contribution to the fund generates the deduction in the year the contribution is made, while grants to the charities themselves go out on whatever timetable the donor chooses. Kitces describes the DAF as decoupling the timing of the contribution, and its corresponding deduction, from the timing of the grant disbursement to another charity, and that decoupling is the feature the new floor makes more valuable.

The arithmetic is simple enough to put in front of a client. A donor with $500,000 of AGI giving $20,000 a year for five years meets the floor five times and forfeits $12,500 of deduction in total; the same $100,000 given in a single year meets it once and forfeits $2,500, with the donor-advised fund holding the balance and paying it out in grants the donor still directs. That is one floor instead of five, and the charities on the receiving end see no change in the schedule.

What that does not support is rebuilding a client's philanthropy around a rounding error. Kitces is explicit that the relative impact of the two limits is not large enough to move many giving plans, and for most clients the honest answer is that nothing changes. The work pays for two donors: the one whose annual giving sits near the 0.5% line, where a modest check now produces no deduction at all, and the top-bracket donor whose itemized deductions are large enough for 2/37ths to be real money.

Both questions — how much, and in which year — now belong in the same meeting, and the second one is new. The returns that will show the floor for the first time are filed in 2027 for the 2026 tax year, which means the bunching decision behind them gets made in the last weeks of 2026.