Beat the 2026 Charitable “Floor”: Why Taxpayers Should Consider a Donor-Advised Fund Now

Beginning in 2026, the One Big Beautiful Bill Act (OBBBA) imposes a 0.5% floor on charitable contribution deductions for individuals who itemize. This means that, starting in 2026, only the portion of aggregate charitable contributions that exceeds 0.5% of AGI will be deductible.

For example: If a taxpayer has an AGI of $200,000, the first $1,000 of charitable giving would not be deductible. Anything over that amount would be.

One way to prepare for this change is to use a bunching strategy—combining multiple years of charitable donations into a single year. That can help you surpass the new floor and maximize your deductions under 2025 rules.

A donor advised fund (DAF) is one of the most flexible vehicles for this approach.

What is a Donor Advised Fund?
A DAF is an account created to support charitable organizations. The account is maintained and operated by a 501(c)(3) organization, called the sponsoring organization. When a donor makes a contribution, the organization has legal control over it. But the donor or their representative retains advisory privileges for the distribution of funds.

This structure allows you to separate the timing of your tax deduction (now) from the timing of your grants to end charities (later).
Individuals who set up a DAF before the end of 2025 can access these and other tax benefits:

Immediate Charitable Deductions
When an individual contributes to a DAF, the contribution is treated as a completed gift to a qualified public charity (the sponsoring organization of the DAF). This means the donor is eligible to claim a charitable contribution deduction for the year in which the contribution is made, even if the funds are not immediately distributed to end charities. The deduction limits are as follows:

• Cash Contributions: For 2025, cash contributions to a DAF are generally deductible up to 60% of the donor’s adjusted gross income (AGI). Any excess can be carried forward up to five years.
• Appreciated Property: Contributions of long-term capital gain property (such as publicly traded securities held more than one year) are generally deductible at fair market value, up to 30% of AGI.

Avoidance of Capital Gains Tax on Appreciated Assets
When an individual donates appreciated securities or other long-term capital gain property to a DAF, you generally do not recognize capital gain on the appreciation. The charitable deduction is generally for the full fair market value of the asset, subject to the 30% AGI limit for long-term appreciated property. This “double benefit” (deduction + capital gains avoidance) is one reason DAFs are particularly attractive for donors with highly appreciated investment holdings.

Harnessing a Bunching Strategy
Once the contribution is made to the DAF, the donor can recommend grants to qualified charities over time. The deduction is claimed in the year of contribution, not when the DAF makes grants.

Different Rules for Corporations
Beginning in 2026, the One Big Beautiful Bill Act (OBBBA) imposes a 1% floor on charitable contribution deductions. That means they can only deduct charitable contributions that exceed 1% of the corporation’s taxable income. Existing limits will remain: charitable contributions by corporations are limited to 10% of taxable income.

Acknowledgment Requirements:
The DAF sponsoring organization must provide a contemporaneous written acknowledgment of the contribution, including a statement that it has exclusive legal control over the assets contributed. For noncash contributions over $500, Form 8283 must be completed and attached to the tax return. For contributions over $5,000, a qualified appraisal may be required.

Bottom line: Consider Whether a DAF is Right for You
Because of the new floors that take effect next year, DAF’s are especially beneficial for those who anticipate making significant charitable contributions in the coming years and want to take advantage of the more favorable deduction rules this year before they change in 2026.

For more information on this strategy and any other tax planning benefits, please consult your Weiss & Company LLP tax advisor.