Starting this year, the first 0.5% of your adjusted gross income (AGI) in charitable giving is no longer deductible. Clearing the floor doesn't make the whole contribution deductible either. Only the portion above it counts:

🔹 On $2M of AGI, the first $10,000 sits below the deduction line, so a $50,000 gift produces a $40,000 deduction,

🔹 On $5M of AGI, the first $25,000 sits below the line, and a $100,000 gift produces a $75,000 deduction.

The charities still receive the full amount either way, but for donors who give a similar amount every year, the non-deductible portion compounds across years.

One way to work around the floor is to concentrate the giving into fewer, larger years. A donor-advised fund (DAF) lets you compress several years of donations into a single contribution and then grant the money out to charities on your usual schedule.

For example, instead of giving $30,000 each year for five years, you contribute $150,000 to the DAF in one year and grant $30,000 annually from the fund. The floor only reduces the deduction once instead of five times, the charities receive the same dollars on the same schedule, and most of the deduction is preserved.

A few things worth knowing when planning the contribution:

🔹 The year you make the contribution changes the size of the benefit. For top-bracket filers, a dollar of charitable giving saves about 35 cents in federal tax because a recent cap limits the benefit of itemized deductions to 35%. California and New York don't cap their state charitable deductions the same way, so residents in the top brackets typically see about 45 cents of combined federal and state savings per dollar given.

🔹 Funding with appreciated stock held more than a year is typically more efficient than funding with cash, since the unrealized gain avoids capital gains tax and the deduction is generally based on the fair market value of the shares.

🔹 Donors over 70.5 can bypass the floor entirely through a qualified charitable distribution, which sends money directly from an IRA to a charity and never flows through AGI in the first place.

🔹 The contribution is irrevocable. Once the money is in the DAF, it has to go to charity eventually, and grants out to operating charities don't generate a second deduction, since the deduction happens at the contribution rather than the grant.

For donors already contributing at the high end annually, the 0.5% floor represents a small fraction of total giving. Bunching applies most directly to households whose annual contributions sit closer to the floor, where the non-deductible portion is a meaningful share of the overall gift.

For educational purposes only. Not tax, legal, or investment advice.