New Charitable Deduction Rules for 2026: What Retirees Need to Know

Households that have made charitable giving a central part of their financial strategy will want to take notice of a significant change taking effect next year. The One Big Beautiful Bill Act (OBBBA), signed into law on July 4, 2025, introduces new limits on the deductibility of charitable contributions—rules that could reduce the tax benefits for many individuals who itemize. With year-end planning underway, now is the time to reassess your giving strategy under this new landscape.

What’s Changing for Households that Itemize

Beginning in 2026, charitable contributions will only be deductible to the extent they exceed 0.5% of a taxpayer’s adjusted gross income (AGI). This floor applies across all types of contributions, regardless of whether the gift is in cash, appreciated securities, or other property.

Example Household

Consider a household receiving $55,000 in Social Security benefits, a $65,000 pension, and $70,000 in IRA distributions—resulting in a total AGI of $190,000. This household gives $30,000 each year to charity and regularly itemizes deductions.

Under the new law, the first 0.5% of AGI—$950 in this example—is not deductible. This means their deductible charitable amount drops from $30,000 to $29,050. While the impact may seem small in absolute terms, over many years this change reduces the overall tax efficiency of sustained giving.

Why 2025 May Be a Critical Year for Strategic Giving

For households using donor advised funds (DAFs), 2025 presents a key planning opportunity. The current rules still allow full deductibility of charitable contributions (up to the existing AGI limits) without the 0.5% floor. At the same time, individuals over age 65 benefit from an increased standard deduction and, in some states, enhanced state and local tax (SALT) benefits.

This creates a window to bundle multiple years of giving into 2025. By doing so, households can exceed the deduction threshold this year, make a sizable contribution to a DAF, and still take the standard deduction in 2026—a year in which no new charitable giving would be needed.

Additionally, those holding appreciated assets—such as stock or mutual funds—can donate those positions to a DAF and avoid capital gains tax while preserving the full deduction value under 2025’s more favorable rules.

Next Steps: Reassess Your Giving Plan Before Year-End

With the One Big Beautiful Bill Act taking effect in 2026, this year offers a final opportunity to give under more favorable deduction rules. For households who give regularly—or are considering significant contributions—now is the time to review your strategy.

Before December 31, 2025, meet with your financial advisor and tax professional to determine whether making a charitable contribution this year aligns with your broader financial and tax goals. A well-timed gift, especially when using tools like donor advised funds or appreciated assets, could offer meaningful tax savings while supporting the causes you care about most.