Donor Advised Funds: a Powerful Tool in 2026

Major changes to Federal income tax laws are coming this year. It is essential for taxpayers to begin discussions with their tax advisors early in the tax season. Proactive planning will help you make the most of the new rules affecting charitable giving.

A DAF is a charitable account held by a sponsoring non-profit organization such as Stablish Foundation. With a DAF, you can receive an irrevocable current income tax deduction while deferring decisions on which charities will ultimately receive the donations. This flexibility makes Donor Advised Funds (DAFs) increasingly useful under the new tax landscape.

Understanding the New Charitable Deduction Rules

The new 2026 rules change how charitable contributions are deducted, depending upon your filing status:

• Itemizers (New Deduction Floor): If you itemize your deductions, you can only deduct the portion of your total charitable contributions that exceeds 0.5% of your Adjusted Gross Income (AGI). For example, with an AGI of $200,000, the first $1,000 of your charitable giving is not deductible.
• Non-Itemizers (Exclusion): A new “universal” above-the-line deduction allows non-itemizers to deduct up to $1,000 ($2,000 for joint filers). However, contributions to a DAF are excluded from this deduction. You may still benefit from not having to pay capital gains when contributing appreciated assets.
• Deduction Cap for High Earners: For taxpayers in the top 37% tax bracket, the tax benefit of charitable deductions is capped at 35%.

Strategic Approaches for Charitable Giving

The following are various advantages and strategies for 2026 to use charitable giving in income tax planning:

~Bundling: Many taxpayers can maximize their deductions by “bundling” multiple years of contributions into a single year – often using a DAF. This strategy helps you exceed the standard deduction threshold, while allowing you to support your chosen charities over several years.

Bundling provides the following advantages:

• Ability to navigate the 0.5% AGI floor
• Ability to surpass the Standard Deduction to itemize your deductions. Optimize the tax benefits of your charitable gift
• Avoid capital gains taxes
• Maintain flexibility on the timing of your charitable gifts

~Gifts of Appreciated Property: Donating appreciated properties, such as securities, directly to a DAF eliminates capital gains on the appreciation. Your charitable deduction is based on the current value of the donated property, not the original cost.

~Combining Strategies: For many taxpayers, combining bundling and gifts of appreciated assets to a DAF provides the greatest tax benefit. This approach provides a source for future charitable gifts, while avoiding the capital gains from the sale of appreciated assets.

Professional Guidance

Charitable giving strategies should be tailored to your individual circumstances. Consult your income tax advisor to determine which approach is right for you. Stablish Foundation has been assisting Donors and their advisors, for over 30 years in navigating the income tax implications of charitable giving, including the use of Donor Advised Funds.