2026 Charitable Giving Changes: What Real Estate Investors Need to Know

Summary: Beginning in 2026, the One Big Beautiful Bill reshapes charitable tax planning for the real estate industry by adding a 0.5% AGI floor on deductions and capping the value of itemized deductions for high-income investors. Real estate owners and developers should strategically align charitable giving under these new rules.

Charitable giving has long been a valuable planning tool for real estate investors, particularly those managing fluctuating income, significant capital gains, or liquidity events tied to property sales. Beginning in 2026, however, changes introduced under the One Big Beautiful Bill (OBBB) will reshape how charitable contributions deliver tax benefits, and real estate investors should take note.

A New Floor on Charitable Deductions

One of the most notable changes under OBBB is the introduction of a 0.5% adjusted gross income (AGI) floor on charitable deductions for itemizers. Under this rule, taxpayers will only be able to deduct charitable contributions that exceed 0.5% of their AGI.

For real estate investors with high income in a year of significant gain, this floor may seem modest. However, it effectively reduces the deductible portion of smaller gifts and raises the threshold at which charitable contributions begin producing tax savings. Investors who regularly make consistent but moderate annual gifts may find the deduction less impactful going forward.

Cap on the Value of Itemized Deductions

OBBB also introduces a cap on the tax benefit of itemized deductions for higher-income taxpayers, limiting the value of those deductions to 35% of the amount contributed. For investors in the top tax brackets, this reduces the marginal tax benefit of large charitable gifts compared to prior law.

This change is especially relevant for real estate professionals and investors who often rely on charitable deductions to offset income from capital gains, depreciation recapture, or passive income recharacterized as active. While charitable giving remains deductible, the after-tax cost of giving will increase for some high-income taxpayers beginning in 2026.

Above-the-Line Deduction Returns for Non-Itemizers

Not all real estate investors itemize every year. Under OBBB, a modest above-the-line charitable deduction returns for non-itemizers beginning in 2026, allowing a limited deduction for cash gifts even when itemized deductions are not claimed. This change expands planning opportunities for investors with diversified income streams or years where itemization is less beneficial – for example, during years dominated by rental income rather than transaction-based gains. While the deduction is limited, it provides a tax incentive for charitable giving even in lower-income or high-standard-deduction years.

Coordinating Giving with Real Estate Transactions

Real estate transactions can accelerate income in unpredictable ways. Installment sales, 1031 exchanges that partially fail, or changes in passive activity loss limitations can all affect taxable income in a given year. Understanding how charitable deductions will be limited or expanded under OBBB allows investors to better coordinate giving with these events.

For example, charitable strategies may be paired with partial dispositions or exit planning to help manage taxable income, especially when full deferral through a 1031 exchange is not feasible. Thoughtful timing can help preserve liquidity while supporting philanthropic goals.

Bunching Multi-Year Charitable Contributions

Combining multiple years of charitable gifts into one year can maximize itemized deductions. Donor-advised funds allow donors to bunch contributions while distributing grants over time. Bunching deductions can be effective in alternating between itemized deductions and the standard deduction to maximize the total allowable deductions over a multi-year period. Ceiling limits and carryforward rules must be considered.

Age 70½ or Older? Consider a QCD.

A qualified charitable distribution (QCD) is a direct transfer from an IRA to a public charity. QCDs are excluded from gross income and they satisfy RMD requirements. The maximum QCD for 2025 is $108,000 per person (indexed annually). QCDs cannot go to donor advised funds, supporting organizations, or most private nonoperating foundations. It is important to confirm the charitable recipient is eligible for QCD treatment and to work with your IRA custodian to execute a direct transfer.

Donate Appreciated Assets Instead of Cash

Giving appreciated assets that would generate long-term capital gain income if sold avoids capital gains tax and provides a charitable deduction equal to the fair market value of the asset. This works particularly well with the donation of publicly traded stock because qualified appraisals are not required to determine the value of publicly traded stock. The charitable deduction is generally limited to cost basis when the property would generate ordinary income if sold. Furthermore, noncash contributions of appreciated capital gain assets are subject to the lower ceiling limitations of 30% or 20%, depending on the type of donee organization.

The Importance of Proactive Planning

While charitable giving remains a powerful tool, it is no longer one-size-fits-all. The OBBB rules introduce new limitations that make timing, structure, and coordination with real estate activity more important than ever.

Real estate investors who proactively evaluate their portfolios, anticipated transactions, and long-term philanthropic goals can still achieve meaningful tax efficiency. Working with tax and real estate advisors now can help ensure that charitable strategies are aligned with both evolving tax law and broader wealth-planning objectives.

For further guidance or to discuss potential planning strategies, reach out to your KSM advisor or complete the form below.