Updated for 2026 tax law changes under the One Big Beautiful Bill Act (OBBBA)
Being able to use your financial resources to give charitably is a beautiful thing. Once you reach the point in your financial path when considering how charitable giving fits into your financial plan, you have many options. You must determine your charitable-giving goal, create a plan, and adjust it to changes. Utilizing a donor-advised fund (DAF) is a thorough approach to maximize your giving while keeping it simple and efficient.
When it comes to giving, there are many methods to consider. In addition to donor-advised funds, our blog post, ‘Boost Your Tax-Efficiency with a Powerful Strategic Giving Plan,’ reviews tax credits for a more local impact and strategies for giving through trust accounts. Donor-advised funds have an advantage over other options because they are a simple, tax-efficient way to support various charities. DAFs are the catch-all of charitable giving; you get all the benefits without the complexity.
A donor-advised fund is an account dedicated to charitable giving. As the donor, you have control of where and when the funds are given to charity. A major financial planning advantage of utilizing a donor-advised fund is its tax-centric nature. Once you move funds to your donor-advised fund, you may claim a tax deduction immediately if you are itemizing.
What changed in 2026?
Before we go further, it’s important to understand how the One Big Beautiful Bill Act (OBBBA) changed certain rules, which took effect on January 1, 2026. Think of these changes like a new set of guardrails on a road you’ve been driving for years — the road is the same, but you need to know where the edges are.
There are three key changes:
A new 0.5% AGI floor. If you itemize your deductions, you can now only deduct charitable contributions that exceed 0.5% of your adjusted gross income (AGI). For example, if your AGI is $400,000, the first $2,000 of charitable giving isn’t deductible. This is similar to how medical expenses have always had a floor — now charitable giving has one too.
A cap on deduction value for top earners. If you’re in the top tax bracket (37%), the value of your charitable deductions is now capped at 35%. The impact is modest, but it’s worth noting for high-income donors.
A new deduction for non-itemizers — but not for DAFs. Non-itemizers can now deduct up to $1,000 (single filers) or $2,000 (married filing jointly) for cash gifts made directly to qualified charities. However, contributions to donor-advised funds and private foundations are not eligible for this new deduction.
Here’s the good news: the 60% of AGI limit for cash contributions to public charities, which was set to drop back to 50%, is now permanent. And DAFs actually became an even more powerful planning tool under the new rules, as we’ll discuss below.
Is this right for me?
Is this right for me?
The first step is to determine your charitable giving goal. The minimum amount to start a donor-advised fund varies depending on where you open your account. The minimum range is $5,000 to $25,000. You may opt to contribute cash to your donor-advised fund, securities, illiquid assets such as real estate, or even life insurance. Once you determine the amount you would like to start the account with, the gift to the donor-advised fund is irrevocable. There is no reversing the decision once the money is in the account. You can also add to the account over time.
Not everything is treated equally for tax benefits in a donor-advised fund. If you contribute cash, you may deduct the donation amount, up to 60% of your adjusted gross income (AGI).
If you contribute securities such as mutual funds, stocks, or ETFs, the deduction depends on how long you’ve owned the security:
- If held less than one year, your deduction is limited to the cost basis of the investment (what you originally paid for it), not the current market value. This deduction is limited to 50% of your AGI.
- If held for more than 1 year, you may deduct the full fair market value of the security, up to 30% of your AGI. This is where the tax magic takes place. You get a deduction for the full value and avoid paying capital gains tax on the appreciation.
Suppose you bought stock for $10,000 and it’s now worth $50,000, donating it directly to your DAF means the full $50,000 goes to charitable use. If you sold the stock first and then donated the proceeds, you’d lose a chunk to capital gains tax before you ever got to give.
If your charitable donation exceeds the AGI limits in any given year, the excess is carried forward for 5 years.
Why DAFs are even more valuable under the new rules
Here’s where the 2026 changes actually make DAFs shine. Remember that new 0.5% AGI floor? It applies each year you make a charitable contribution. But with a DAF, you can “bunch” multiple years of giving into a single contribution. The floor only hits you once — when you fund the DAF — rather than every single year.
Think of it like a toll road. If you drive to the same destination five days a week, you pay the toll five times. But if you could make one trip and stock up for the whole week, you’d only pay it once. A DAF lets you pay the charitable “toll” once.
For example, if you plan to give $10,000 per year to charity over the next five years, you could contribute $50,000 to a DAF in one year, take the deduction (minus the one-time 0.5% AGI floor), and then recommend grants of $10,000 each year from the DAF. Compared to giving $10,000 annually and losing the floor amount every year, the DAF approach safeguards significantly more of your deduction.
Ready to start giving
After you fund the account, you can begin your grant recommendations. A ‘grant recommendation’ is the terminology for giving to a charity of your choice from your donor-advised fund. The donor-advised fund can be used to support multiple charities at different times and in varying amounts. You have flexibility because the account is still under your control. However, since you are no longer the owner, you cannot withdraw funds for non-charitable purposes.
The company housing your donor-advised fund is called the custodian. As you recommend grants to various charities, your custodian keeps close records and prepares your necessary tax forms. The idea of keeping all your charitable giving records in one place can be appealing, especially if you give multiple times throughout the year to numerous charities. You do not receive additional tax benefits for recommending grants. Your deduction is available when you initially fund the DAF or add to it. For noncash contributions over $500, you will use IRS Form 8283 to claim the deduction. Cash contributions are reported on Schedule A.
The simplicity of managing a donor-advised fund is an advantage over giving directly to charities themselves. Your donor-advised fund giving history and contribution history are all in one place. When April 15th rolls around, housing all of your charitable records in one place can be priceless.ou are no longer the owner, you cannot take money out for non-charitable purposes.
Nothing is free…
here are costs involved. Typically, there are three types of expenses the donor-advised fund is subject to under the custodian’s rules. Again, they aren’t your costs since you aren’t the owner after the transfer. To allow the account to grow as much as possible, most custodians advertise their low-cost management of donor-advised funds. The three costs include a maintenance fee, which may be waived if the account exceeds a certain threshold. The second cost is an administrative fee for operating expenses. The final cost is the investment fee, which refers to the expense ratios of the investments themselves.
Speaking of investments, just like grants, you may recommend investment allocations. The donor-advised fund grows tax-free. Once you have transferred securities to the account, you may reallocate the investments without tax consequences. Many custodians have socially conscious investment options, allowing you to give back in a sense, while the balance is growing, before you make a grant recommendation. The socially responsible investment options are two-fold: they aim to earn an investment return and to donate to a specific cause. The targeted causes can range from environmental to social justice to religious beliefs.
The ability to recommend investment allocations is another advantage of a donor-advised fund over giving directly to a charity. Because the account is an investment account, you can continue to grow your donation (depending on your asset selection) to get more charitable bang for your buck. You are setting up the account for future giving while potentially receiving a sizable tax benefit when you fund it.
What investments you may transfer to your donor-advised fund is custodian-specific. The custodians want to help you fund your account and have much broader abilities to house complex or non-traded investments than most charities. If you have a complex asset that has appreciated, or even a stock that has appreciated, you will have a greater impact by transferring that security to a donor-advised fund. By transferring the security without selling it first, you retain 100% of its value for charitable use. If you were to give directly to a charity and they could not accept the security, you would have to sell and be subject to capital gains tax, thus reducing the charitable impact you are making and increasing your tax burden.
When?
The timing of when to create a donor-advised fund is unique to your goals and financial picture, but it typically offers the most tax benefits when you are in your higher-earning years. With the 2026 changes, timing matters more than ever. A large contribution in a high-income year maximizes the deduction benefit and minimizes the impact of the new 0.5% AGI floor. If you have a year with a significant windfall. Items such as a business sale, a large bonus, or a Roth conversion, that may be an ideal time to fund a DAF and offset some of that income.
Don’t Forget About QCDs
If you’re 70½ or older, you have another opportunity to give to charities tax efficiently. A qualified charitable distribution (QCD) lets you donate up to $111,000 directly from your IRA to a qualified charity in 2026. It counts toward your required minimum distribution, and the money never shows up as taxable income. One thing to keep in mind: QCDs can’t go to a donor-advised fund. They have to go directly to an operating charity
The bottom line
Donor-advised funds have always been a smart, flexible vehicle for charitable giving. Under the 2026 tax rules, they’ve become even more valuable. Especially with the ability to bunch contributions and minimize the impact of the new AGI floor. Whether you’re looking to simplify your giving, maximize your tax benefit, or build a legacy of generosity, a DAF is worth considering.
Everyone’s picture of charitable giving looks different. If you’re wondering whether a donor-advised fund fits into your financial plan, or how the 2026 tax changes affect your current giving strategy. Let’s talk.
