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They say it’s better to give than to receive, and that’s especially true when clients use qualified charitable distributions.
Tax law changes made by the One Big Beautiful Bill Act are quietly reshaping charitable giving and income planning strategies for affluent retirees in 2026, particularly their use of qualified charitable distributions. The tax law’s new 0.5% adjusted gross income floor and 35% cap on itemized deductions have materially changed the economics of charitable giving, according to TaxStatus CEO Kevin Knull. The changes are making QCDs significantly more valuable because they bypass both limitations entirely by reducing AGI directly. Advisors should make sure they’re up to speed on the new changes to help clients avoid unnecessary tax bills.
“QCDs are great because they aren’t just a tax deduction,” Knull told Advisor Upside. “It’s a straight-up deletion.”
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What’s Changed and Why It Matters
The new 0.5% AGI floor is, in essence, a rule that requires taxpayers who itemize deductions to subtract 0.5% of their adjusted gross income from their total annual charitable contributions. Under the rule, only the portion of donations that exceeds this threshold is deductible, while anything below it provides zero tax benefit. In practice, Knull said, this new 0.5% AGI floor limits charitable itemized deductions for nearly every client who itemizes. This applies before the traditional 60%, 50%, 30% and 20% AGI limits kick in, which means deductions will be smaller than what advisors and clients have been accustomed to.
An analysis published by the donor-advised fund platform Ren offers some numbers to illustrate the impact:
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For a client reporting $500,000 in AGI, the first $2,500 of charitable contributions is non-deductible.
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At $1 million AGI, the floor wipes out the first $5,000.
In practical terms, a top-bracket client making a $100,000 charitable gift previously received $37,000 in tax benefit. Under the new cap, that same gift yields $35,000. Two cents per dollar may sound small, but it compounds on large gifts and the impact stacks on top of that of the 0.5% floor.
Getting QCDs Right. These dynamics cast QCDs, which are already popular, in an even more favorable light, Knull said. It’s crucial, however, that these charitable contributions are properly handled and coded on the relevant tax forms. “The money needs to flow directly from your individual retirement account to the charity,” Knull said. “If it flows to you first, that’s going to be counted and taxed as ordinary income. That mistake happens more often than you might expect.” Under current rules, clients also cannot make contributions directly to a donor-advised fund, as the IRS requires QCD funds to go directly to operating public charities.