The One Big Beautiful Bill Act adds a 0.5% floor on adjusted gross income to the itemized charitable deduction, effective for tax years beginning in 2026. The floor is small in percentage terms. It still changes the math for modest annual gifts. Understand it before you set your giving plan for the year.
What The 0.5% AGI Floor Actually Does
Beginning in 2026, a taxpayer who itemizes reduces their otherwise deductible charitable contributions by 0.5% of AGI. Only the contributions above that floor count as an itemized deduction. The floor applies to the total charitable deduction for the year, not to each gift separately. It sits on top of the other long-standing limits that already cap how much giving is deductible in a single year.
A Worked Example Of The Floor
Take a taxpayer with $800,000 of AGI. The floor is 0.5% of that, or $4,000. The first $4,000 of charitable gifts produces no itemized deduction. Only the giving above $4,000 is deductible. A $30,000 annual gift therefore yields a $26,000 charitable deduction, while a $3,000 gift yields none at all. The floor is what makes small, steady annual giving less efficient than it was.
Who The Floor Reaches
The floor only matters to taxpayers who itemize. It bites hardest on modest annual giving relative to income. A household that gives a few thousand dollars a year and itemizes may find that some or all of that giving now produces no deduction. Larger gifts clear the floor easily, so the practical effect is concentrated on the small-gift end of the giving pattern.
Starting in 2026, itemized deductions for people in the 37% bracket are worth at most 35 cents per dollar, and non-itemizers can deduct up to $1,000 of cash gifts to charity ($2,000 joint).
Why Bunching Still Matters
Bunching means concentrating two or three years of giving into a single year and taking the standard deduction in the off years. It becomes more useful under a floor, not less. In a year with no giving, the floor is irrelevant because there is no charitable deduction to lose. In the bunched year, the floor is cleared once and all the giving above it deducts. A two-year pattern can therefore preserve the deduction on the same total giving that, spread evenly, would have been partially swallowed by the floor each year.
Appreciated Assets And The Floor
Long-term appreciated assets, such as stock or real estate held more than a year, remain deductible at fair market value. The donor still avoids the capital gains tax they would have owed on a sale. The 0.5% floor applies here too, so the first sliver of value does not deduct. For a meaningful gift, the floor is a minor offset against the combined benefit of the deduction and the avoided gain. Donor-advised funds fit naturally into a bunched giving year and are subject to the same floor.
What Is Not Changed
The floor does not change the rules for non-cash gifts, the substantiation requirements for larger gifts, or the carryforward of contributions that exceed the annual limits. It also does not affect the standard deduction, which remains the alternative to itemizing. What changed is the starting point at which itemized charitable giving begins to produce a deduction.
What To Bring To A Conversation
Bring the last two years of giving records, your expected AGI for the current year, and any appreciated assets you have considered donating. With those, the giving pattern can be modeled against the floor before the end of the year. The bunching decision should rest on actual numbers rather than a rule of thumb. If you want to work through it, we can run the federal and California effect together.