Tax policy set to change in 2026 could shrink charitable deductions for higher earners, reshaping year-end giving and nonprofit budgets. The shift traces back to President Trump’s tax package and the way several provisions expire after 2025.
The changes would affect donors who itemize and those with very high incomes. Nonprofits worry about fewer large gifts. Tax advisers expect a busy 2025 as donors look to lock in current rules.
President Donald Trump’s “big beautiful bill” could reduce the deduction on charitable donations for higher earners in 2026. Here’s what to know.
How the 2026 Reset Could Cut Deductions
Several temporary rules from the 2017 Tax Cuts and Jobs Act are scheduled to sunset on January 1, 2026. If Congress does not act, two changes in particular could reduce the tax value of charitable gifts for wealthy taxpayers.
- The return of the Pease limitation, which trims itemized deductions for high-income filers.
- A lower cap on cash gifts to public charities, dropping to 50% of adjusted gross income (AGI) from the current 60% cap.
The Pease limitation reduces itemized deductions by 3% of income above a set threshold, up to an 80% cut. That means part of a donor’s charitable deduction could be shaved down if income is high enough.
The AGI cap matters for donors making large cash gifts. Under current rules, a donor can deduct cash contributions up to 60% of AGI. In 2026, that ceiling would likely revert to 50%, restricting how much can be claimed in a single year. Excess amounts can still carry forward, but the immediate tax benefit would fall.
Background: What Changed After 2017
The 2017 law nearly doubled the standard deduction and limited or eliminated several itemized deductions. Many households stopped itemizing, which affected smaller and mid-size gifts. For higher earners, the higher 60% AGI limit for cash gifts helped sustain large donations. Temporary boosts during the pandemic, including a 100% AGI cap for cash gifts in 2020 and 2021, have ended.
In 2026, many individual tax cuts will expire unless extended. That includes lower marginal rates, the higher standard deduction, and the charitable rules discussed above. The policy reset would make itemization more common again, but the Pease limitation would offset some of that by squeezing deductions at the top.
Nonprofits Brace for Volatility
Nonprofit leaders say significant gifts often arrive in December, and tax incentives influence both the timing and the size. Fundraising officers warn that even small changes in deduction limits can shift donor behavior.
Large institutions that rely on seven-figure gifts could see donors spread commitments over more years due to the lower AGI cap. Community foundations expect increased interest in donor-advised funds in 2025 as donors front-load gifts while current rules remain in place.
Smaller charities worry about a “crowding out” effect if high earners bunch giving into 2025 and then pause. They also note that higher income tax rates in 2026 may partly increase the value of deductions, but the Pease cap could blunt that benefit at the top.
What Donors Can Do Before 2026
Advisers suggest early planning in 2025. Strategies include:
- Completing large cash gifts in 2025 to use the 60% AGI cap.
- Bunching several years of giving into one year to maximize itemization.
- Funding donor-advised funds to lock in a deduction now while granting over time.
- Reviewing gifts of appreciated securities, which may still offer substantial tax benefits.
High earners should also watch for the return of the Pease limitation. Modeling expected income and deductions can show how much might be trimmed and whether carryforwards will be needed.
What Congress Might Do Next
Lawmakers from both parties are preparing proposals on the expiring tax rules. Some want to extend parts of the 2017 law, while others argue for a reset. Charitable rules could be part of a larger package, traded against rate changes or business provisions.
Policy groups are pressing Congress to keep the 60% AGI cap and block the return of the Pease charitable-gifts provision. Others argue that high-income deductions should be limited to fund other priorities.
For now, the default is clear: in 2026, the deduction on charitable donations for higher earners is likely to shrink through the return of Pease and a lower AGI cap. Donors and nonprofits have a year to plan. The key signals to watch are committee drafts, revenue estimates, and whether a year-end tax deal takes shape in 2025. The choices made in the next session will shape giving for years to come.
