Year End Planning—HR 1 Charitable Contribution Changes in 2026

For those making large contributions HR 1 makes two major changes to itemized charitable contributions beginning in 2026. First, as of Jan. 1, 2026, Sections 70425 and 70426 of the Act provide that individuals who itemize will only be able to deduct charitable contributions that exceed 0.5 percent of their adjusted gross income (AGI) and that corporations can only deduct contributions in excess of 1 percent of taxable income. The second HR 1 change on January 1 provides a new maximum benefit from charitable contributions that is 35 percent. For those in the 37 percent marginal tax rate, that is a reduction of 2/37ths or approximately 5.4 percent, which might be significant for large contributions. To calculate the deductible amount for individuals, the overall marginal tax rate limit is applied and then the contribution is further reduced by the 0.5 cutback, resulting in an even greater reduction.  

These provisions might encourage large donors and corporations to accelerate contributions into 2025 before the new cutbacks and limits apply. Then, on an ongoing basis, donors may change the timing of contributions by “bunching” them into one year so that they will only have a single half-percent cutback instead of annual cutbacks. 

For those making really large contributions, Subsection 70425(b)(1) of HR 1 makes a permanent change to allow a 60 percent of AGI limit for cash donations to public charities instead of the previous limit of 50 percent. This would allow larger deductions by major contributors.   

For those making small contributions, HR 1 provides an above-the-line (towards AGI deduction) for cash contributions to public charities of up to $1,000 for singles or $2,000 for married filing jointly. Those who do not itemize may want to wait until January 1 to make deductible contributions. Those who take the standard deduction did not get a tax benefit from their contributions until this change.    

Charities that receive donations should be aware of these changes and may wish to encourage large donors to make their contributions before the end of the year. Charities that rely on significant contributions, such as universities, should expect a slight surge in large contributions at the end of 2025, followed by a new pattern of contributions as donors may bunch donations in a single year instead of maintaining a steady pattern of giving. Charities that rely more on a large number of smaller contributions may expect the opposite, with donors putting off contributions until they can be deductible towards AGI in 2026. After January 1, these charities might encourage and expect to receive additional donations from non-itemizers.