Your Income Tax Charitable Deductions Are Different in 2026

“Your Income Tax Charitable Deductions Are Different in 2026,” that’s the subject of today’s ACTEC Trust and Estate Talk.

This is Natalie Perry, ACTEC Fellow from Chicago.

The One Big Beautiful Bill Act brought major changes to charitable tax incentives, changes that are expected to increase the number of taxpayers who itemize deductions to take advantage of expanded benefits.

Joining us to break down what these updates mean for individuals is ACTEC Fellow Professor Christopher Hoyt from the University of Missouri School of Law in Kansas City. Chris explains what taxpayers need to know to make the most of their charitable giving strategies under the new rules. Welcome, Chris.

Overview: Charitable Deduction Changes in 2026

Professor Christopher Hoyt:  Thank you, Natalie. And let’s explore how the laws have changed in 2026 based on the OBBBA tax changes in Washington. They’re calling it OB3, which I like because it has sort of a Star Wars connotation. And as we look at these rules, these rules on charitable tax deductions look like they did come from a galaxy far, far away.

New Non-Itemizer Charitable Deduction

First of all, more people will be able to deduct their charitable gifts in 2026 because we now have a tax deduction for non-itemizers. Only about 10% of taxpayers itemize their deductions and take advantage of the charitable income tax deduction. 90% of taxpayers use the standard deduction, but now in 2026, the non-itemizers are able to get a tax deduction for the charitable gifts. Up to $1,000 on single returns, up to $2,000 on married joint returns. To qualify for this non-itemizer charitable deduction, you have to make a cash gift – cash or credit card.

Donor-Advised Funds, Grant Foundations & Supporting Organizations Excluded

What will not qualify is clothing or household items. The deduction is not available for gifts to donor-advised funds, private grant foundations and supporting organizations. And for a gift of $250 or more, the donor needs the same type of receipt from a charity that they would need for an itemized charitable gift – a contemporaneous written acknowledgement that describes the property donated and says you got no goods or services.

New Federal Tax Credit for K-12 Scholarship Gifts

The second change in 2026 is there’s a new type of charity where if you give to this charity, it qualifies for a tax credit. That means if you give $100 to this charity, you reduce your federal income tax bill by $100. So, it’s a tax credit for cash gifts to a state-certified “K through 12” scholarship granting charity. The most you can take as a credit is $1,700 for individuals, $3,400 on a married joint return.

Every state will submit the names of these scholarship granting organizations to the Internal Revenue Service. And there’s a whole bunch of rules, like the donor has to be in the same state as the state-certified EGO. You can’t earmark it for any specific student and the grant recipients must be K through 12 students from families with under 300% of the median area income.

Income Limits for Scholarship Beneficiaries

For example, in Kansas City, the median area income is $80,000, they come from families with income under $240,000. The scholarship would be tax-free to the recipients. We’ll learn a lot more about this as the year goes on.

Higher SALT Deduction Cap Increases Itemizers

Now the other change is that more taxpayers can itemize in 2026 through 2029. In the past, only 10% of taxpayers itemize. We project that to go up to 14%. And the reason is that we have a temporary law from 2025 through 2026 that people can deduct more of their state and local taxes as itemized deductions between 2025 and 2029. They can deduct up to $40,000 of state and local taxes. This increased a little bit with inflation. In the year 2026, they’ll be able to deduct $40,400.

Phase-Out Rules for High-Income Taxpayers

Wealthier taxpayers pay more state income tax and state property tax than lower income taxpayers, but there is a limit. The highest income taxpayers won’t qualify for the $40,000 deduction. There’s a phase out that begins at $500,000 and ends at $600,000. If a taxpayer’s income is over $600,000, they are stuck with the old $10,000 limit.

Planning Threshold for SALT Deduction

Some tax planning for people near the $500,000 limit will be to try to keep their income under $500,000 so they can deduct the full $40,000 amount. If a taxpayer itemizes, they can get tax benefits for larger charitable gifts, more than $2,000. Before we get started, I just want to highlight there’s an important difference between taxpayers who are over the age of 70 ½ and taxpayers who are under the age of 70 ½. If a taxpayer is over the age of 70 ½, they have the ability to make tax-free distributions from their individual retirement account, IRA, to charities. And that’s probably the way they should go. They will avoid the complexity I’m about to talk about for itemized deductions. They can exclude the gift from their income with a Qualified Charitable Distribution, the QCD.

Best Strategies for Donors Under 70½

But if the taxpayer’s under the age of 70 ½, then you usually want to avoid using your IRA for charitable gifts, and especially want to avoid using your IRA for charitable gifts if you’re under the age of 59 ½, because not only would you have taxable income from the distribution, but there’s a 10% penalty. If the taxpayer’s under the age of 70 ½ and itemizes deductions, normally they get the most tax savings if they give appreciated stock.

New Limits on Deductible Charitable Gifts

There’s two rules that reduce your tax benefits from itemized charitable deductions beginning in the year 2026. The first is that individuals can only deduct charitable gifts that exceed one-half of 1% of their adjusted gross income. If we have a married couple with $200,000 of income, and every year they give $5,000 to charity, and they itemize their deductions, in 2025 they were able to deduct all $5,000, but in 2026, they have to reduce their tax deductions by ½ of 1% of their income. If their income is $200,000, ½ of 1% is $1,000. And now even though they gave $5,000 to charity, they can only deduct $4,000.

Reduced Tax Benefit for the Highest Earners

The second change applies to wealthy taxpayers who itemize. And that is if a taxpayers in the 37% tax bracket, the highest tax bracket, they can only get a 35% tax break from their itemized deductions, including charitable gifts. For example, if somebody has $900,000 of taxable income, they’re in the 37% tax bracket. 37% begins at about $630,000 single, $730,000 married. For every additional $100 they have, there’s a 37% tax. They take the $100 and they give it to charity. On their tax return then, they will have $100 hit with the 37% tax rate. But when they give the $100 to charity, they’re only able to reduce their taxes by 35%. There’s a 2% tax on that charitable gift.  And some estate planners are concerned that this also applies to the income of trusts andestates. That trust or an estate is in the 37% tax bracket with just $16,000.

Reduced Tax Benefit for the Highest Earners

So we have reduced tax benefits from itemized charitable deductions beginning in the year 2026. And thus, for those donors who are over the age of 70 ½, they should use their IRA for all charitable gifts. If someone distributes $5,000 from their IRA to charity, they reduce their income by $5,000. There’s no ½ of 1% reduction in their tax savings. Similarly, if the taxpayer has $900,000 of income and they give $5,000 from their IRA to charity, they get 37% tax savings by avoiding having the income reported in the first place – make the QCDs.

We did a podcast in April 2025 on Qualified Charitable Distributions, but that’s the bottom line. The new tax law has made IRA giving more advantages for taxpayers over the age of 70 ½. Thank you.

Natalie Perry:  Thank you, Chris. I appreciate your time, and that was a great, informative presentation.

You may also be interested in:

• Your Charitable Income Tax Breaks Are Changing in 2025 and 2026 (Nov 2025)
• Qualified Charitable Distributions (QCD) from IRAs (Apr 2025)
• Estate Planning Under the One Big Beautiful Bill Act (OBBBA)
  • Part 1: Estate & Gift Tax and Charitable Contributions Under the OBBBA
  • Part 2: Qualified Opportunity Zone (QOZ) Planning Strategies Post OBBBA
  • Part 3: How the OBBBA Impacts Qualified Small Business Stock (QSBS)
  • Part 4: Qualified Business Income (QBI) Post-OBBBA

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