Trump’s ‘big beautiful bill’ slashes this tax break for high earners in 2026

President Trump's tax legislation will significantly alter charitable deduction benefits for high-net-worth individuals starting in 2026, introducing a 0.5% adjusted gross income floor and a cap for top-bracket filers. These changes are projected to reduce the tax savings from large donations, such as a $100,000 gift potentially yielding $3,750 less in tax benefit for a $1 million AGI earner. Consequently, financial advisors recommend proactive planning in 2025, including "bunching" multiple years of donations into donor-advised funds, to maximize current, more favorable deductions before the new provisions take effect.

Analysis

Forthcoming tax legislation, set to take effect in 2026, will materially alter the tax efficiency of charitable giving for high-net-worth individuals who itemize deductions. Two key provisions will be introduced: a floor that limits deductions to amounts exceeding 0.5% of adjusted gross income (AGI), and a cap that reduces the value of the deduction for filers in the top 37% income tax bracket. The financial impact is tangible; for an individual with a $1 million AGI, a $100,000 donation that currently yields a $37,000 tax saving would generate approximately $3,750 less in tax benefit under the new 2026 rules. Consequently, wealth management professionals are advising a proactive strategy of 'bunching' multiple years of philanthropic contributions into 2025. This strategy is primarily facilitated through donor-advised funds (DAFs), which allow donors to claim a larger, upfront deduction under the more generous current tax code while scheduling the actual distribution of funds to charities in subsequent years. A separate, more modest provision will also introduce a new deduction for non-itemizers in 2026, capped at $1,000 for single filers and $2,000 for joint filers.

Key Decisions for Investors

• High-net-worth investors who engage in significant philanthropy should evaluate accelerating planned donations into 2025 to capitalize on the more favorable tax treatment before the new deduction limitations are implemented.
• Consider utilizing a donor-advised fund (DAF) before year-end 2025 to 'bunch' several years of charitable contributions, thereby maximizing the immediate tax deduction while retaining the flexibility for future giving.
• Investors should immediately model the impact of the 0.5% AGI floor and the top-bracket deduction cap on their future tax liabilities to inform the timing and structure of their philanthropic strategies.
• Review existing charitable giving plans with tax advisors to determine if front-loading donations into 2025 presents a clear financial advantage over spreading them into 2026 and beyond under the new, more restrictive regime.