Many charities advertise that donations are tax-deductible, but most people don’t deduct donations on their taxes. That’s because over 80% of taxpayers use the standard deduction, and they don’t get to deduct donations to charities when they don’t itemize. People donate because they support the cause, whether they get a tax deduction or not.
I’m in the 80%. I don’t track my donations because I know I won’t deduct them.
This will change in 2026.
New Deduction When You Don’t Itemize
Some of you may recall that Congress allowed people who don’t itemize deductions to still deduct a small amount of their charitable donations during COVID. It was originally a one-off $300 deduction in 2020 (see CARES Act 2020 Charity Donation Deduction: $300 or $600 for Married?). Congress re-created it with some tweaks as another one-off for 2021 (see 2021 $300 Charity Deduction When You Don’t Itemize).
The new 2025 Trump tax law resurrected the 2021 version and raised the allowed amount from $300 to $1,000 ($2,000 for married filing jointly). It’ll be ongoing this time, starting in 2026 (not 2025), with no preset end date.
All the other terms from 2021 are carried over to this new iteration. This deduction is only for people who take the standard deduction. The donations must be in cash, not necessarily physical cash, but not in household items, cars, stocks, bonds, mutual funds, ETFs, or crypto. Checks, card payments, and bank debits are all OK. The donations must be made directly to charities, not to a donor-advised fund.
There’s no income limit or phaseout. All other requirements about charity donations still apply, including getting a written acknowledgment with all the required elements.
Some places reported that this deduction is “above the line.” It’s not true. This new deduction doesn’t lower your AGI. It doesn’t make it easier for you to qualify for other tax breaks. It doesn’t affect state taxes. See Tax Deductions: Above-the-Line, Itemized, and Neither for the differences in various types of tax deductions.
Lower Deduction When You Itemize
If you itemize deductions, this new $1,000/$2,000 deduction isn’t available to you. You’ll continue to include your charity donations as itemized deductions on Schedule A. However, the new 2025 Trump tax law adds a floor for your charitable contributions deduction at 0.5% of your AGI, also starting in 2026 (not 2025), with no preset end date.
This floor is similar to how the medical expenses deduction has a floor at 7.5% of AGI. It reduces the amount you can deduct by 0.5% of your AGI. For example, suppose your AGI is $100,000. 0.5% of $100,000 is $500. After this change goes into effect in 2026, when your total donations to charities add up to $4,000, you can deduct only $3,500 as an itemized deduction.
Accelerating your planned donations in future years to 2025 will avoid having your deduction reduced by 0.5% of AGI each year.
QCD
The new 2025 Trump tax law didn’t make any changes to Qualified Charitable Distributions (QCDs).
If you’re over 70-1/2, QCDs out of a Traditional IRA continue to be the best way to donate to charities. QCDs count toward the RMD, but they don’t raise your AGI. You don’t have to itemize to make QCDs. Nor are you required to reduce the amount by 0.5% of AGI. The annual limit for QCDs is 100 times higher than this new $1,000/$2,000 deduction for people who don’t itemize. It’s too bad that only those 70-1/2 and older can do QCDs.
The only thing is that QCDs can’t go to a donor-advised fund. If you ask the IRA custodian to make payments to the charities, they’ll show a total as QCDs on the year-end 1099 form. Do them early in the year before you take any other distributions out of the Traditional IRA, including Roth conversions. Make sure the charities cash the checks before December 31.
You can also write checks from your IRA and send them to charities yourself, but your IRA custodian won’t know which checks you wrote are QCDs. They won’t be able to indicate them as such on the 1099 form. You’ll have to keep track of them yourself and report what amount from the total distributions on the 1099 form was QCD.
Naturally, because QCDs are excluded from your income to begin with, you can’t deduct QCDs again either toward this new $1,000/$2,000 deduction when you don’t itemize or as a part of the itemized deductions.
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You’ll find more deep dives on recent changes from the 2025 Trump tax law in the full OBBBA series.
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Rick Thompson says
Thanks for this helpful information. I think many folks are incorrectly assuming that the new $1,000 ($2,000 MFJ) Charity Deduction starts in 2025, like most other provisions of the OBBBA.
And, thanks for reminding folks of the many advantages of QCDs. I take it that QCDs will have no impact on still getting the new $1,000 Charitable Deduction for non-QCD donations, and that QCDs themselves do count towards the new $1,000 Charitable Deduction.
Harry Sit says
You can do both QCDs and non-QCD donations and still get the deduction for non-QCD donations, but QCDs do NOT count toward the $1,000 deduction or for that matter, itemized deductions.
Steve Wagner says
Thank you Harry, well done. I just started QCDs and they are a bit of work. I believe donors who make these need to be prepared that recipient charities will only report total amounts received without differentiating between the two. Also, shouldn’t we say QCDs are not deductible under any circumstance?
Harry Sit says
I thought it was a given that you can’t double-dip but I’ll make it doubly clear.
Rita Glickman says
Re: QCD.
True they are never deductible. But record-keeping to avoid being taxed by the IRS needs to be maintained – not by the charity receiving the distribution – but by the donor when filling out income tax forms. There is a place to indicate what part of the RMD for the year is a Qualified Charitable Distribution. Income Tax prep software leads you through how to identify what part of the distribution is a QCD.
Solid work as usual – Harry Sit!
Derek castle says
Thanks Harry. As always , very helpful. I am interested in your comments that the new $1,000/ $2,000 charitable donations will not be above the line/ will not reduce AGI. I have checked literally dozens of websites from reputable financial institutions and financial advisors and every one of them says it will be above the line. Do you have any source/ s that you can quote regarding it not being above the line? This will be an important tax question for many in 2026. Thanks. Derek
Harry Sit says
Those other places use “above the line” as a shorthand for “itemizing not required.” The two concepts used to cover the same set of deductions. Only above-the-line deductions didn’t require itemizing, and therefore not requiring itemizing must have been above the line. This is no longer the case. Some deductions are below the line (don’t reduce AGI) but still don’t require itemizing. This new charity donation deduction for non-itemizers is one of them.
The section in OBBBA is very short:
“SEC. 70424. Permanent and expanded reinstatement of partial deduction for charitable contributions of individuals who do not elect to itemize.
(a) In general.—Section 170(p) is amended—
(1) by striking “$300 ($600” and inserting “$1,000 ($2,000”, and
(2) by striking “beginning in 2021”.
(b) Effective date.—The amendments made by this section shall apply to taxable years beginning after December 31, 2025.”
It amends the 2021 version by changing only the amount and the date. You can look at the 2021 Form 1040 to see where it was placed and how it didn’t reduce AGI.
https://www.irs.gov/pub/irs-prior/f1040–2021.pdf
Now you know which sources are loose with their terminology. In general, financial institutions and financial advisors aren’t good sources for tax information.
Derek castle says
Thanks a lot Harry. I can see that the OBBB Act is only modifying the Code 170p 2021 language, and that 2021 ( unlike 2020) was not above the line. It is a shame that there is so much misinformation about this. It is not just in one or two places , it is ubiquitous. For us QCDs have been really useful. However the new “not above the line” deduction will also be very useful, especially for small donations , or spur of the moment donations, where it would be a hassle to get FIdelity to send a check. While this deduction will not reduce our AGI ,we have no tax breaks with an AGI issue. While most of our large donations next year will be QCDs, we will also use the new deductions for smaller donations via check or credit card where we can just have our financial institution record and not always need to bother the charity with getting a receipt ( unless it is physical cash).
Thanks again for all your valuable information Harry.
Rick Thompson says
Thanks for updating the section on QCDs. Prior to reading your update, I did not know about the new (and long-overdue) IRS requirement that traditional IRA custodians must now indicate the QCD amount on Form 1099-R.
Derek says
Thank you for the great info. Could you clarify if the 0.5% floor applies only to those who itemize charitable contributions or also to the non-itemizers who take advantage of the $1000/$2000 deduction after this year?
Harry Sit says
The 0.5% floor applies only to itemizers.
Jeremy says
Sorry if this is a silly question, so it’s not “above the line” does that mean it’s a credit? (subtract amount donated from tax due?) I appreciate your work and read both it and the linked above/below/neither pieces but am still confused. Thanks!
Harry Sit says
It’s not a credit. It reduces your taxable income, which lowers your tax by a percentage, but it doesn’t lower your AGI to make you qualify for other things.
FinancialDave says
Harry,
If you were able to do QCD and only had $2000 to donate, would you use the new below the line SD or the QCD, and why? Neither reduces AGI. One lowers size of TIRA and the other lowers size of taxable and reduces taxes.
Harry Sit says
QCD is theoretically better. Assuming you otherwise would withdraw $10,000 from the IRA to supplement spending, now you make $2,000 QCD and withdraw $8,000. $8,000 is added to your AGI instead of $10,000. Combined with the $2,000 in taxable you didn’t donate, you have the same $10,000 to spend and you pay tax on $8,000 either way. Lowering the AGI is better than lowering the taxable income because it can theoretically make you qualify for other tax breaks.
Whether lowering the AGI by only $2,000 makes any actual difference depends on whether you’re in the phaseout range for other tax breaks. It makes no difference if you’re not in any phaseout range.
FinancialDave says
Harry,
I think the other side of the coin is if I need $10k to spend and $2k to donate, in either case that is $12k total. I can get that with $8k TIRA + $2k taxable to spend and $2k taxable to donate, which has same $8k AGI. This is potentially better as I am spending down taxable which is less efficient??
Harry Sit says
In that case you can withdraw $10k from the IRA and do $2k QCD. Now you’re just talking about the difference between spending another $2k out of the IRA, which is taxable, versus spending $2k out of the taxable account. It’s unrelated to the donation decision.
Either way is fine. $2,000 one way or the other makes little difference unless you’re right at the cutoff for something.
FinancialDave says
Harry,
Forgetting about the tax created, which is the same either way and the AGI, which is the same either way.
If I chose to use the QCD I get no tax benefit, for that act.
If I choose to use the new $2000 charitable deduction in 2026 I get a benefit of 2000*MTR (marginal tax rate). If my tax rate is 12% I will save $240 over doing the QCD. For me who is retired and claiming SS, this $2000 deduction will save me 2000*22.2% because I am in the 12% bracket with SS not yet maximized so tax rate is 12+10.2 or 22.2%, so using the added deduction will save me $888.
Harry Sit says
You do get tax benefit when you use QCD and reduce your IRA withdrawal. Consider these scenarios, assuming you’re not realizing capital gains when you use money from the taxable account:
(A) $10k IRA withdrawal, $2k donated from taxable: AGI +$18,500 (+$10k from IRA, +$8,500 SS), taxable income +$16,500 (after the deduction).
(B) $8k IRA withdrawal, $2k QCD, $2k spent from taxable: AGI +$14,800, taxable income +$14,800.
(C) $8k IRA withdrawal, $2k donated from taxable, $2k spent from taxable: AGI +$14,800, taxable income +$12,800.
(D) $6k IRA withdrawal, $2k QCD, $4k spent from taxable: AGI +$11,100, taxable income +$11,100.
B is better than A: same amount coming out of each account but lower AGI and lower taxable income.
You’re saying, wait, C is better than B: same AGI with lower taxable income. That’s only because you’re keeping more money in the IRA, which will be taxable in the future. It’s not an apples-to-apples comparison because the amounts coming out of each account aren’t the same between B and C. If you’re willing to keep more money in the IRA and draw more from the taxable account, D is better than C.
We can continue these scenarios, withdrawing less and less from the IRA and more and more from the taxable account.
(E) $6k IRA withdrawal, $2k donated from taxable, $4k spent from taxable: AGI +$11,000, taxable income +$9,100.
(F) $4k IRA withdrawal, $2k QCD, $6k spent from taxable: AGI +$7,400, taxable income +$7,400.
(G) $4k IRA withdrawal, $2k donated from taxable, $6k spent from taxable: AGI +$7,400, taxable income +$5,400.
(H) $2k IRA withdrawal, $2k QCD, $8k spent from taxable: AGI +$3,700, taxable income +$3,700.
(I) $2k IRA withdrawal, $2k donated from taxable, $8k spent from taxable: AGI +$3,700, taxable income +$1,700.
(J) $0 IRA withdrawal, $2k QCD, $10k spent from taxable: AGI +$0, taxable income +$0.
(K) $0 IRA withdrawal, $2k donated from taxable, $10k spent from taxable: AGI +$0, taxable income -$2,000.
For each scenario to donate from the taxable account, there’s a corresponding scenario that’s better with QCD until you’re withdrawing nothing from the IRA. QCD can’t beat it at that point but you’re trading future taxes for current tax savings. It’s unrelated to how you donate.
David FinancialDave says
Harry, I don’t know where the $888 came from above. 22.2% of 2000 is $444.
FinancialDave says
Harry,
Why do you assume everyone only spends their IRA because they have to satisfy an RMD.
Consider the following two cases. #1 everyone will face. #2 some will face like me who have enough bandwidth to spend above the RMD requirement for some time after RMD age, which for most now will be at least 75.
#1. age 70.5 to RMD age, where QCD is possible, but not required. RMD is not required but IRA withdrawal is fixed at some budget point we will call it $20k, but could obviously be $0 and won’t affect the outcome. Whether I take $2k QCD or $2k taxable will not materially affect IRA balance, because I most likely won’t ever spend all of IRA and the balance of the IRA has no effect on taxes, other than slightly larger balance when RMDs start, but that larger balance by $2000 will only affect how much my heirs might inherit by some small amount that is not material to the discussion since I am always withdrawing more than RMD, even in later years, obviously up to a point.
So like I said $2k QCD buys me nothin
Harry Sit says
I didn’t say anything about the RMD? All my examples don’t assume anything about the RMD. The person could be before RMD age, or the withdrawal could be discretionary in addition to the RMD.
I gave my best explanation with the previous scenarios. If those aren’t convincing, it’s OK. Maybe I’m missing something. That’s OK too. Each pair of comparison (B over A, D over C, …) lowers the AGI by only $3,700 and the taxable income by only $1,700, which saves $204 in the 12% bracket. $200 isn’t that meaningful when we’re talking about spending and donating $12,000 total. It’s not worth overanalyzing. QCD requires more work. If you don’t see the value, don’t do it. That’s why I said in the beginning QCD is only theoretically better in this case. The difference is too small to worry about in practice.
FinancialDave says
Harry,
Website clipped the bottom half of my message about point #2 when I tried to submit it without filling in my name…oops
Anyway both cases work out for spending taxable deduction first because IRA is always spent at a rate larger than the RMD, so using QCD or not doesn’t change anything. I have been doing this myself since age 70.5 and will continue on now that RMDs are required.
FinancialDave says
Harry,
I have to admit when I worked this out I forgot to allow for the fact that SS taxable does not change in either case of an apples to apples comparison, but from helping review your Financial Toolbox book I know you would certainly consider getting a $240 “discount” if you could, when spending $2000 from either your IRA or your checking account. Let me show you with some real numbers using 2024 tax tables for a single person 71 years old with SS of $30,000 and $25,000 TIRA withdrawal, for a spending budget of $55,000. The person wants to donate $2000 to charity so wants to know the effect of either doing a QCD, or writing a check for $2000 from excess funds saved up. No taxable account exists for this person, which will not add confusion to what is going on.
So what is starting tax return look like:
SS taxable = $9600 + $25,000 for AGI of $34,600 less SD $16,550 = $18,050; tax = $1934.
Option 1 QCD $2k tax still $1934.
Option 2 new 2026 $2k deduction for charity. AGI same tax =$1694 for $240 savings. If in 22% bracket savings would be $440. In both cases you spent $57k, just in option 2 you got a discount of $240. These numbers are calculated and not from tax software, which may differ by up to $5 or so. If you want, delete some of earlier responses in error.
Harry Sit says
I think our disconnect is in whether the IRA withdrawal must be fixed and the QCD must only go on top, or the IRA withdrawal can be lowered by the amount of the QCD. When you donate through QCD, you free up the money you otherwise would use to donate. This allows you to lower the IRA withdrawal and still have the same amount for spending. The tax savings of a QCD comes from lowering the IRA withdrawal by the amount freed up. A lower IRA withdrawal leads to lower taxes.
You’ll see the tax savings if you add an Option 3: $30,000 SS, $2,000 QCD, $23,000 IRA withdrawal, $2,000 from excess funds saved up to supplement spending. The cash flow from each source (SS, IRA, excess funds saved up) must be equal to make it apples-to-apples: $30,000 in from SS, $25,000 out from the IRA, $2,000 out from the excess funds pile.
QCD does nothing only if you don’t lower the IRA withdrawal and, as a result, keep more money in the excess funds pile than you otherwise would when you were writing a check. If you make it $27,000 out from the IRA and $0 out from the excess funds pile, you’re withdrawing $2,000 more from the IRA to top up the excess funds pile. It’s OK to do so, but we shouldn’t be surprised it negates your tax savings. To recap,
– Option 1: $2,000 less in the IRA, no change to the extra savings pile, no tax savings.
– Option 2: $2,000 less in the extra savings pile, $240 tax savings.
– Option 3: $2,000 less in the extra savings pile, $___ tax savings depending on phaseouts.
You’re saying Option 1 is a bad way to do QCD. I agree. That’s not the right way. Option 3 is.
I hope this finally gets my point across. If not, it’s the best I can come up with. Again, it’s all theoretical. I would choose Option 2 and not bother with a QCD for a $2,000 donation because it’s more convenient to write a check or donate online.
FinancialDave says
Harry,
Yes, you are correct all around and I was correct in telling a friend “Harry Sit” is almost always 100% correct! Thank you so much for staying with this.
The savings by the way, according to my one-line calculator I built is $444 in 2025 for Option 3. Spendable income used $57k and effective tax rate 2.61%. Very close to what I think mine will be this year.
I was having trouble because I was holding back taxable TIRA spending in 2025 and my only withdrawal was in March, so I can’t “hold back” any more TIRA, so that option seemed to be blocked in my mind. I suppose anyone would have the same problem if they are making this decision in December, or withdraw for the whole year in January, you can’t hold back what you have already done, so next year I need to plan ahead.
Thanks again!
Harry Sit says
Dave – I’m happy to hear we’re on the same page now. To be clear, the larger tax savings from Option 3 ($444 versus $240) is only because less than 85% of Social Security is taxable yet. If this person has a higher income that makes the full 85% of Social Security taxable, the tax savings from QCD would be the same as the tax savings from taking a deduction.
FinancialDave says
Harry,
You are correct of course, in that if SS is maxed out both before and after the deduction, both methods result in the same savings. What you may be surprised about is what the savings can be for higher SS benefits, and or if dividends are involved.
Once again using 2024 tax tables for single person.
1. Move SS up to $35k benefit. Taking QCD leaving $47k IRA withdrawal saves you 22% in taxes. Tax $8247. Leaving IRA withdrawal at $49k and taking the $2k deduction results in the same.
However, let’s consider the full taxation of SS comes with a lot of dividends from a taxable account.
2. $35k SS benefit, $45k Dividends, and $4k ordinary income. Tax $4108. A $2k QCD reduces that tax by a 27% marginal rate to $3568. Leaving IRA withdrawal at $4k and taking the $2k deduction results in the same 27% marginal reduction.
One final example for the person who doesn’t quite get their income up high enough to be above the Max SS point.
3. $35k SS benefit $42k IRA, tax $6411, with QCD deduction saves $814 or 40.7% marginal. In the second case of $42k IRA with a $2k deduction the person saves only 22% marginal.
So bottom line, QCD is normally better if it reduces IRA and SS taxation is not maxed out.
Point of above is SS taxation can bring in some marginal tax brackets up to 40.7%, when you might think you are in a much lower bracket!