What to know about qualified charitable distributions under the 2026 tax rules

In 2026, charitable giving strategies for high-income taxpayers and retirees are changing as new tax rules under the One Big Beautiful Bill Act (OBBBA) alter how deductions are calculated. Planning now can help these groups preserve both philanthropic impact and tax efficiency as new thresholds and limitations take effect.

What’s Changing in 2026?

Starting this year, two new limitations will affect the financial advantage of giving:

• AGI Threshold for Itemizers: Only contributions exceeding 0.5% of adjusted gross income (AGI) will be deductible.
• Cap on Tax Benefit: High-income donors in the 37% tax bracket will see their charitable deduction capped at a 35% tax benefit, reducing the savings compared to prior years.

For taxpayers who have relied on itemized deductions to offset taxable income, these changes could significantly reduce the financial benefit of giving.

For further information, read our related insight: What the One Big Beautiful Bill Means for High-Net-Worth Individuals

Qualified Charitable Distributions: A Clever Workaround

A Qualified Charitable Distribution (QCD) is a direct transfer of funds from an individual retirement account (IRA) to a qualified charitable organization. Available to individuals aged 70½ or older, QCDs satisfy required minimum distribution (RMD) requirements without increasing taxable income.

Already an efficient giving tool, QCDs become even more valuable under the 2026 rules because they:

• Bypass both the AGI floor and the 35% cap by reducing taxable income directly, without relying on itemized deductions.
• Help lower the next year’s Medicare premiums, which are tied to taxable income.

Key features include:

• Direct Transfer: IRA custodian sends money directly to a 501(c)(3) charity.
• Annual Limit: Up to $111,000 per person can be donated through QCDs.
• Eligibility: Applies only to IRAs, not 401(k)s. Cannot be used for donor-advised funds or private foundations.

Example in Action

Consider a retiree in 2026 with a $100,000 RMD, married filing jointly, age 65+, and no mortgage interest or other charitable contributions. State and local tax deduction is capped at $10,000.

Scenario 1: Using a QCD

The retiree donates $50,000 directly to charity via QCD. In this case, the standard deduction is more beneficial ($35,400 for married filing jointly, age 65+). Only $50,000 of the RMD is taxable income because the other $50,000 is excluded. Plus, the lower AGI may reduce Medicare premiums, and there is no need to meet the 0.5% AGI threshold or worry about the 35% cap. The retiree can enjoy savings at their marginal tax rate (e.g., 37% bracket = $18,500 in tax avoided).

Scenario 2: Traditional Donation (No QCD)

If the retiree takes the full $100,000 RMD into income and then donates $50,000 to charity not via QCD, only $47,500 is deductible (after the 0.5% AGI floor), with a maximum of 35% in tax savings. The taxpayer can itemize, but they’d lose the standard deduction. The charity still receives the full amount, but the donor’s tax savings are limited ($47,500 x 35% = $16,625 max). Since AGI remains higher because the full $100,000 is included, Medicare premiums may also be higher.

Result

When comparing the tax savings in the two scenarios ($18,500 with QCD vs. $16,625 without), the QCD saves at least $1,875 more, plus the benefit of the standard deduction and the lower AGI, which can reduce Medicare costs.

The Strategic Advantage of Acting Now

By incorporating QCDs into your giving plan, you can:

• Avoid the 0.5% AGI threshold for deductions. Since a QCD is an "above-the-line" exclusion from income, it bypasses this new floor entirely.
• Sidestep the 35% cap on tax benefit for high earners. Using a QCD allows the full amount to be excluded from taxable income, avoiding this limitation.
• Lower your adjusted gross income (AGI), which may also reduce your overall tax liability and Medicare premiums.

This strategy transforms charitable giving from a simple act of generosity into a tax-smart approach.

We Can Help

The clock is ticking. Now is the time to integrate QCDs into your giving strategy.

At Elliott Davis, our High-Net-Worth Team specializes in tax-efficient solutions tailored to individuals and retirees. From QCD planning to estate coordination, we’ll help you preserve wealth, reduce tax exposure, and make a lasting impact.

Contact us today to explore strategies that align with your financial goals and philanthropic vision.

The information provided in this communication is of a general nature and should not be considered professional advice. You should not act upon the information provided without obtaining specific professional advice. The information above is subject to change.