Charitable Deduction 2026: 0.5% Floor, 35% Cap and Q4 Gifts

What changed on January 1, 2026, rule by rule

Pub. L. 119-21 (signed July 4, 2025) changed four charitable rules that matter to an individual. Each of the three sections carries the same effective-date sentence: the amendments “shall apply to taxable years beginning after December 31, 2025” (sections 70111(c), 70424(b) and 70425(c)). For a calendar-year taxpayer that means every gift made in 2026, including one made in Q4. Our donor-advised fund guide covers what a sponsor will accept; this page covers the arithmetic of the deduction.

Sources: 26 U.S.C. 68, 170 and 63 (Cornell Legal Information Institute, current text with 2025 amendment notes); Pub. L. 119-21, sections 70111, 70424 and 70425 (govinfo.gov). Corporations get a separate 1% floor (section 70426), not covered here.

The “35% cap” is a 2/37 reduction, and it hits every itemized dollar

Searches for “35% cap” land on an idea, not a sentence of the Code. The words in section 68(a) are a fraction: itemized deductions “shall be reduced by 2 ⁄ 37” of the lesser of two amounts, the deductions themselves or the taxable income (before the itemized deductions) above where the 37% bracket begins. For 2026 Rev. Proc. 2025-32 puts that point at $768,700 on Table 1 (joint returns and surviving spouses) and $640,600 on Table 3 (unmarried individuals) and on Table 2 (heads of household).

Two features of the formula matter more than the headline:

• It is computed on the whole itemized total. A gift is one line among state tax, mortgage interest and others. The 35 cents applies to the marginal dollar of any itemized deduction once the reduction applies in full, which is when the income above the threshold is at least as large as the deductions.
• Just above the threshold it bites less. At $800,000 of AGI on a joint return with $86,000 of itemized deductions ($40,000 plus a $46,000 gift deduction after a $4,000 floor), the income above $768,700 is $31,300, so the reduction is 2/37 of $31,300, or $1,691.89, not 2/37 of $86,000 (our arithmetic).

The reduction cannot be avoided by the form of the gift: it works on the deduction, not on the asset. What a taxpayer under the threshold keeps is the full marginal rate, for example 32% in the joint bracket from $403,550 to $512,450 (Rev. Proc. 2025-32, Table 1).

Worked examples: a $50,000 gift of appreciated shares at $500,000, $1 million and $3 million of AGI

Assumptions (ours, to keep the arithmetic readable): a married couple filing jointly in 2026; no income or deductions other than AGI and $40,000 of other itemized deductions; one gift of $50,000 of shares worth that amount on the day of the gift, held more than one year, given to a charity described in 170(b)(1)(A) (so the 30% limit for capital gain property applies); no other gifts; no qualified business income deduction. Brackets are the 2026 joint brackets in Rev. Proc. 2025-32. The tax saved is the federal income tax with the gift minus without it; it leaves out the capital gain tax the couple avoids by not selling the shares, which our capital gains guide and net investment income tax guide cover.

Step 1, the limits and the floor. The gift is far below both percentage limits. The floor decides the deduction.

Our arithmetic from 170(b)(1)(C), (D) and (I). The 20% column is shown for comparison; the gift in these examples goes to a public charity.

Step 2, the 2/37 reduction and the tax. Taxable income before itemizing equals AGI in our assumptions, so it is $500,000, $1,000,000 and $3,000,000.

Our arithmetic from 26 U.S.C. 68 and 170 and Rev. Proc. 2025-32, Table 1. “Without the gift” itemized deductions are $40,000 (reduction $0 at $500,000, $2,162.16 at the other two). The last column applies the marginal rate to the full $50,000, as the law worked before 2026.

Reading the table: at $1,000,000 the gift saves $15,750, which is the $45,000 allowed deduction times 35%. Against $18,500 under the old rules, the $2,750 gap is the floor (5,000 x 37% = $1,850) plus the 2/37 reduction on the remaining $45,000 (45,000 x 2% = $900). At $3,000,000 the gap is $6,250: $5,550 from the floor and $700 from the 2/37 reduction (our arithmetic). The floor is the bigger effect at every level; the 35% cap is the smaller one.

When the 30% limit binds, the floor amount is not lost

Take the $500,000 couple again but give $250,000 of shares to a public charity. The 30% limit allows $150,000 this year. The floor takes $2,500 of it, so the 2026 deduction is $147,500. The $100,000 above the limit carries forward under 170(b)(1)(C)(ii) to the “5 succeeding taxable years,” and because this year hit the limit, section 170(d)(1)(C) adds the floor amount to the excess: $102,500 carries forward (our reading of the text). The $50,000 gift in the table above is different: no limit is exceeded, so the $2,500 to $15,000 absorbed by the floor is not carried anywhere. Sources that say the floor amount always carries forward, or that it never does, are each half right; the heading of 170(d)(1)(C) says “carried forward only from years in which limitation is exceeded.”

The same sections also decide what a private non-operating foundation gets. Capital gain property given to one is under the 20% limit of 170(b)(1)(D), and 170(e)(1)(B)(ii) reduces the deduction by the long-term gain unless the property is “qualified appreciated stock,” meaning stock for which “market quotations are readily available on an established securities market” (170(e)(5)(B)(i)). A listed REIT or BDC share can qualify. A non-traded share cannot, so a gift of it to a private foundation is deducted at basis (our reading of those two paragraphs).

The non-itemizer deduction: cash only, and nothing for shares

Section 170(p) gives an individual who does not elect to itemize a deduction of up to $1,000 ($2,000 on a joint return). It is computed as if the only gifts were cash gifts made in the year to a 170(b)(1)(A) organization, “determined without regard to subsections (b)(1)(G)(ii), (b)(1)(I), and (d)(1),” so the floor and carryovers do not apply to it. Two exclusions remain in the text: gifts to a 509(a)(3) organization, and gifts “for the establishment of a new, or maintenance of an existing, donor advised fund.” Section 63(b)(4) lists the 170(p) deduction among the subtractions from AGI for a non-itemizer, next to the standard deduction (which Rev. Proc. 2025-32 sets at $32,200 joint and $16,100 single for 2026), so the two stack (our reading).

For a reader with $50,000 of appreciated shares, the practical point is that 170(p) cannot be used: a gift of shares is not cash, and the standard-deduction filer gets no deduction for it. To deduct the shares a couple has to itemize.

Bunching: what two years of giving look like under the floor

Because the floor applies to each year’s total, concentrating gifts in one year uses it once. Two examples with the 2026 figures held for the second year (the 2027 amounts are not yet in the sources we read):

In example B the 60% cash limit and the 30% limit are far away, and the 2/37 reduction does not apply because income is below $768,700. A gift to a donor-advised fund sponsor is a payment to the sponsor, so under 170(a) it is deducted in the year it is made (our reading; see the donor-advised fund guide for what sponsors accept and how long it takes). Direct cash gifts in the off year can still use the 170(p) deduction if that year is a standard-deduction year; a DAF contribution cannot.

Q4 2026: holders of appreciated real estate interests, REIT shares and BDC shares

Nothing in the 2026 changes alters which assets qualify. What the change adds is a cost to timing mistakes and a reason to look at the whole year’s giving at once. The rules below are the ones that decide whether a gift made before Thursday, December 31, 2026 produces the deduction in the tables above.

On timing, section 170(a) allows a contribution “payment of which is made within the taxable year.” Publication 526 (2025) explains that a properly endorsed stock certificate is delivered “on the date of mailing or other delivery to the charity or to the charity’s agent,” but that if you give it to your agent or the issuer for transfer to the charity’s name, “your contribution isn’t delivered until the date the stock is transferred on the books of the corporation.” For a non-traded REIT or BDC, whose transfer agent may need weeks and whose repurchase windows our year-end tax calendar lists, the transfer date is the date to watch. Publication 526 (2025) is written for 2025 returns (the edition is dated February 5, 2026) and does not mention the floor, so it is the source for the gift-date and limit rules, not for the 2026 changes.

Three other pages cover what this one does not repeat: the donor-advised fund guide (sponsor acceptance policies, appraisal timing, UBTI), the charitable remainder trust guide (a gift with income back to the donor) and the qualified charitable distribution guide (IRA money, which the floor does not touch because it is excluded from income rather than deducted).

Decision points, and who does the work

The tables above turn on four questions that the documents cannot answer for a reader: whether the couple will itemize at all in 2026; what AGI will be (a property sale or Roth conversion in 2026 raises AGI and so raises the floor in dollars, while raising the 30% limit); whether taxable income reaches the 37% bracket threshold; and whether next year’s giving should be moved into this one. A CPA computes AGI, the Section 68 reduction and the Form 8283 reporting; a qualified appraiser values non-traded interests; the charity or DAF sponsor decides whether to accept the asset and when the transfer is complete. A financial adviser can help weigh the gift against the rest of the balance sheet but does not prepare the return.

At $3,000,000 of AGI the same $50,000 gift saves $12,250 in federal tax, or 24.5 cents per dollar given (our arithmetic).

This is analysis of public documents, not investment, legal or tax advice.

What a donor can do with this

• Write down your 2026 AGI estimate first. The floor is 0.5% of it: $2,500 at $500,000, $5,000 at $1,000,000, $15,000 at $3,000,000.
• Check whether you reach $768,700 (joint) or $640,600 (single) of taxable income. Below it the 2/37 reduction does not apply; above it each deducted dollar is worth 35 cents, not 37.
• Compare your itemized total with $32,200 (joint) or $16,100 (single). If giving is the only thing lifting you over, a bunched year may beat two ordinary years.
• Sort the assets by holding period. Shares or interests held more than one year are deducted at fair market value; others at basis (170(e)(1)(A)).
• For non-traded or private interests, line up the appraisal and the transfer date now. Thursday, December 31, 2026 is 73 days away from October 19, 2026.
• Keep the floor amount in mind if you give more than the 30% limit. At $500,000 of AGI a $250,000 gift carries $102,500 forward; a $50,000 gift carries nothing.
• Ask your CPA about the AGI-limit carryovers you already hold from earlier years. The sources we read disagree on whether the floor applies to them, and we found nothing in the statute text that settles it.

FAQ

Sources, read and saved on October 19, 2026: 26 U.S.C. 63, 68 and 170 (Cornell Legal Information Institute, current text with the 2025 amendment notes); Pub. L. 119-21, sections 70111, 70424 and 70425 (govinfo.gov); Rev. Proc. 2025-32 (irs.gov); IRS Publication 526 (2025), dated February 5, 2026 (irs.gov). We did not find the Joint Committee on Taxation’s description of Pub. L. 119-21 through our search tools, so the page relies on the enacted text. Worked examples are our arithmetic on stated assumptions, not a tax return. This is analysis of public documents, not investment, legal or tax advice.