The One Big Beautiful Bill Act (OBBBA), signed into law on July 4, 2025, reshaped the federal tax treatment of charitable giving, with its provisions now fully in effect. For high-income donors and philanthropic families, some of the changes are genuinely less favorable than the rules they replaced. But the strategic case for one giving vehicle, the donor-advised fund, has strengthened under the new law.

In this Perspective, we’ll examine what changed, what didn’t, and how the right structure can help you give effectively in 2026.

What the OBBBA Changed for Charitable Giving

The law introduced a mix of expansions and restrictions. The net effect depends heavily on whether you itemize, your income level, and how you structure your giving.

Changes that tighten deductions for high-income itemizers

• A new 0.5% adjusted gross income (AGI) floor. Beginning in 2026, itemizers can only deduct the portion of charitable contributions that exceeds 0.5% of their adjusted gross income. For a taxpayer with $500,000 in AGI, the first $2,500 in charitable giving generates no deduction at all.
• A reduced deduction value for top-bracket donors. Taxpayers in the 37% bracket now have their charitable deduction capped at 35 cents per dollar. A $10,000 donation that would have saved $3,700 in taxes in 2025 now saves $3,500.

Changes that benefit donors

• A new above-the-line deduction for non-itemizers. Single filers who take the standard deduction can now deduct up to $1,000 in cash gifts to qualifying public charities; married couples filing jointly can deduct up to $2,000. This expands the giving incentive to the roughly 90% of households that do not itemize.
• The 60% AGI limit is now permanent. The existing cap allowing cash gifts to public charities of up to 60% of AGI, which had been scheduled to revert to 50%, is now permanent under the OBBBA.
• The higher state and local tax (SALT) cap may help more donors itemize. The SALT cap rises to $40,000 through 2029 (subject to income phaseouts), which may push more taxpayers in high-tax states over the itemization threshold, making charitable deductions relevant again.

One important exclusion to know

The new above-the-line deduction for non-itemizers explicitly excludes contributions to donor-advised funds (DAFs). It applies only to direct cash gifts to qualifying public charities. This distinction matters for planning purposes and is discussed further below.

How the 0.5% Floor Changes the Math

The AGI floor seems modest, but its cumulative effect on a consistent giving strategy is meaningful. Consider a donor with $300,000 in AGI who gives $6,000 to charity each year. Under the new rules, the first $1,500 of that gift (0.5% of AGI) is not deductible. Over five years, the donor loses the tax benefit on $7,500 in giving, a significant reduction in what was previously fully deductible.

The floor applies each year, which means spreading donations evenly across years compounds the cost. But there is a straightforward structural alternative: concentrated giving, or “bunching.”

Here’s how bunched giving works: A donor who contributes three or four years’ worth of giving into a single year clears the floor decisively in that year, claims the full available deduction, and then grants to their chosen charities on their normal schedule in subsequent years while taking the standard deduction in those off years. A donor-advised fund is ideal for facilitating this strategy.

Planning Consideration: The 0.5% AGI floor does not apply to contributions made to a DAF in the year of the gift. However, any 2025 charitable deduction carried forward into 2026 or later is subject to the floor. If you have carry-forward deductions from a prior year, consult your tax advisor about how they will be treated.

What a Donor-Advised Fund Is and How It Works

A donor-advised fund (DAF) is a charitable giving account sponsored by a public charity, typically a financial institution or community foundation. You make an irrevocable contribution to the DAF, receive an immediate tax deduction in the year of the gift, and then recommend grants to qualifying nonprofits on your own timeline. Per Fidelity Charitable, the funds can be invested and may grow tax-free between contributions and distributions.

Key features that make a DAF particularly useful under the OBBBA rules:

• Contributions are deductible in the year they are made, regardless of when grants are distributed to charities.
• You can contribute cash, appreciated securities, real estate, or other assets, avoiding capital gains on appreciated property while deducting the full fair market value.
• There is no requirement to distribute funds in any given year, giving you complete flexibility to give on your own schedule.
• Family members, including children and grandchildren, can be named as successor advisors, making a DAF a useful multi-generational giving platform. However, the sponsor may limit the number of generations that can be named successor advisors, so check the terms.
• The administrative burden is minimal compared to a private foundation, with no mandatory payout requirements, no separate tax filings, and lower costs.

Important note: There are tradeoffs to giving through a DAF that stem from its ownership structure. Ultimate authority over how the DAF is governed and how the funds are managed and distributed rests with the sponsor. As an account holder, your role is technically limited to that of an advisor, which is why they’re called “donor-advised funds.” In practice, this means that although you don’t have the costs, liability, and administrative burdens associated with owning the charitable vehicle, you do give up a measure of control and flexibility. You should discuss the full list of charitable and financial considerations with your advisor.

Planning Consideration: Contributions to a DAF qualify for the same 60% of AGI deduction limit as direct cash gifts to public charities. Appreciated non-cash assets contributed to a DAF are generally deductible at fair market value, subject to a 30% of AGI limit.

How a DAF Helps You Navigate the New Rules

The bunching strategy is where a DAF provides its clearest advantage under the OBBBA. Instead of giving $10,000 per year to various nonprofits and losing the benefit of the 0.5% floor each year, a donor contributes several years’ worth of giving to a DAF in a single year, claims the full itemized deduction, and then recommends grants to their preferred charities at whatever pace feels right.

The table below illustrates the difference for a donor with $300,000 in AGI:

The tax savings from this structure are more pronounced for top-bracket donors, where even a modest reduction in the floor drag, combined with avoiding the 35% deduction cap on multiple years’ worth of giving, can produce a meaningful difference in after-tax giving efficiency.

Planning Consideration: Donating appreciated securities directly to a DAF (rather than selling them and donating the proceeds) remains one of the most tax-efficient giving strategies available. You avoid capital gains tax on the appreciation and receive a deduction at the asset’s full fair market value, a dual benefit that the OBBBA did not disrupt. Per the IRS, contributions of appreciated property to a DAF are generally treated as charitable contributions subject to standard AGI limits.

Who Benefits Most From a DAF in 2026

A DAF is a useful tool for a wide range of donors, but the OBBBA’s specific changes make it particularly compelling for:

• High-income itemizers. The combination of the 0.5% AGI floor and the reduced 35% deduction cap makes annual, unstructured giving less efficient. A DAF with a bunching strategy recovers much of that lost benefit.
• Donors with major income events. A business sale, large bonus, stock option exercise, or real estate sale may create a year of unusually high income and unusually high deduction capacity. Pre-funding a DAF in that year locks in the deduction at the most favorable moment.
• Philanthropic families with multi-year giving plans. A DAF can hold funds for years or decades, involve multiple family members in grant decisions, and support a wide range of charitable priorities without the administrative complexity of a private foundation.
• Seniors with IRAs. Taxpayers age 70½ or older can use a qualified charitable distribution (QCD) to donate directly from a traditional IRA to a qualifying charity, reducing AGI without going through the standard deduction process. The 2026 QCD limit is $111,000 per IRA owner. Note that QCDs cannot be directed to a DAF, but they can complement a DAF strategy for donors who use both tools.

Practical Steps for Getting Started

1. Review your giving history. Estimate how much you give annually across all charitable recipients. This establishes the baseline for a bunching analysis.
2. Model the bunching opportunity. Work with your tax advisor to compare the after-tax outcome of annual giving versus pre-funding a DAF with two, three, or more years of contributions. The calculation turns on your AGI, current deductions, and expected giving level.
3. Consider contributing appreciated assets. If you hold long-term appreciated securities, contributing them to a DAF rather than selling and donating cash avoids capital gains entirely and may increase the effective value of your gift.
4. Choose a DAF sponsor. DAFs are offered through financial institutions, community foundations, and charitable organizations. Minimum contribution thresholds, investment options, and fee structures vary. Your advisor can help you identify a sponsor that fits your situation.
5. Set a grant schedule. Once funded, you can recommend grants immediately or over time. There is no requirement to distribute in any given year, giving you full flexibility to respond to new charitable priorities as they arise.

The Bottom Line

The OBBBA made charitable giving modestly more complicated for high-income donors. The 0.5% AGI floor and the reduced deduction for top-bracket taxpayers are real costs, and ignoring them might mean leaving money on the table.

But the underlying tools for strategic giving remain intact. And for donor-advised funds, the new rules have made them more relevant, not less. A well-structured DAF, used with a bunching strategy and appropriately timed contributions, can recover much of what the OBBBA’s restrictions take away, while giving you a flexible, multi-year platform to support the causes you support.

The key is to plan proactively rather than react at year-end, when your options are narrower.

To explore how these changes may affect your charitable giving strategy, contact us to schedule a conversation.