How New Tax Rules Affect Your Savings: A White Paper on Charitable Giving Efficiency Under the One Big Beautiful Bill Act
Executive Summary
Donating long-term appreciated securities remains one of the most tax-efficient charitable strategies in 2026. You can still avoid capital gains tax on the built-in appreciation while claiming a deduction for the fair market value of the asset.
However, new provisions from the One Big Beautiful Bill Act (OBBBA) introduce important nuances for high-income taxpayers. For individuals in the top 37% federal income tax bracket, the tax benefit of itemized charitable deductions — including those from appreciated assets — is now capped at an effective rate of 35%.
This white paper examines a realistic example, explains the mechanics, and highlights why appreciated asset donations continue to deliver strong overall tax advantages despite the changes.
The Scenario
Consider a high-income single filer in the 37% federal marginal tax bracket who donates $10,000 (fair market value) of long-term appreciated stock (held for more than one year) directly to a qualified public charity in 2026.
Assume the stock has a low-cost basis (for illustration, $2,000), resulting in $8,000 of unrealized long-term capital gain.
Key Tax Benefits That Remain Strong
- Avoidance of Capital Gains Tax: By donating the stock directly instead of selling it, the donor completely avoids federal long-term capital gains tax (typically 15% or 20%) plus the potential 3.8% Net Investment Income Tax on the $8,000 gain.
- Potential tax savings from gain avoidance: Approximately $1,200 – $1,600 (depending on the exact capital gains rate). This benefit is unchanged under the 2026 rules and often represents the largest part of the tax advantage when donating appreciated assets.
- Income Tax Deduction for Fair Market Value: The donor can generally deduct the full $10,000 fair market value of the stock (subject to applicable limits, such as 30% of adjusted gross income for most non-cash contributions to public charities, with a 5-year carryforward for any excess).
The 2026 Limitation: 35% Effective Deduction Benefit Cap
Under prior law, a $10,000 charitable deduction for someone in the 37% bracket would typically generate $3,700 in federal income tax savings ($10,000 × 37%).
Starting in 2026, for taxpayers in the 37% bracket, the tax benefit of itemized charitable deductions is capped so that each deductible dollar saves only 35 cents in taxes.
- 2026 tax savings from the deduction: $10,000 × 35% = $3,500.
- Reduction compared to prior rules: Approximately $200 less in income tax savings.
This cap applies to the value of the deduction itself and affects all itemized deductions for high earners, not just charitable contributions. It is one of several changes introduced by the OBBBA, alongside a new 0.5% AGI floor for itemizers and an above-the-line deduction for non-itemizers.
Combined Tax Impact of the Gift
Even with the 35% cap, the overall economics of the donation remain highly favorable:
- Capital gains tax avoided: ~$1,200 – $1,600
- Income tax savings from deduction: $3,500
- Total estimated tax benefit: $4,700 – $5,100 on a $10,000 gift
Net after-tax cost of the $10,000 gift: Roughly $4,900 – $5,300 (before considering any state tax benefits or other factors).
This is significantly lower than the cost of selling the stock, paying capital gains tax, and then donating cash.
Important Planning Considerations in 2026
- 0.5% AGI Floor: Only charitable contributions exceeding 0.5% of adjusted gross income qualify for the itemized deduction. High-income donors may benefit from “bunching” multiple years of giving into a single tax year to clear this floor efficiently.
- AGI Percentage Limits: Non-cash gifts like appreciated stock are generally limited to 30% of AGI (with carryforward), while cash gifts to public charities can reach 60% of AGI.
- Appreciated Assets Still Preferred: Donating long-term appreciated securities continues to outperform donating cash in most cases because of the capital gains avoidance.
- Alternative Vehicles: Donor-advised funds (DAFs), charitable remainder trusts (CRTs), or qualified charitable distributions (QCDs) from IRAs (for those 70½ and older, up to $111,000 in 2026) may offer additional flexibility or benefits.
Bottom Line
The 35% effective cap slightly reduces the income tax savings from the deduction for top-bracket taxpayers, but it does not eliminate the substantial advantages of donating appreciated stock. The strategy still allows donors to:
- Avoid capital gains tax entirely
- Claim a deduction for the full fair market value
- Support causes they care about while lowering their taxable estate
For ultra-high-net-worth individuals and families, especially those in Minnesota, facing a top state income tax rate of 9.85%, combining appreciated asset gifts with other tools (such as donor-advised funds or integrated estate planning) can further enhance tax efficiency and philanthropic impact.
Next Steps
At Nicollet Investment Management, we help clients model the tax outcomes of different charitable strategies within their broader financial and legacy plans. Contact our team to analyze how these 2026 rules apply to your specific situation and to explore optimized giving approaches.
(Note: All tax figures and rules are based on 2026 federal tax law under the One Big Beautiful Bill Act. Individual results vary based on total AGI, other deductions, state taxes, and specific asset details. This white paper is for educational purposes only and is not tax or legal advice. Consult your tax advisor or attorney before implementing any strategy.)
Important Disclaimer
“This white paper is provided for informational and educational purposes only and does not constitute investment advice, legal advice, or tax advice, and should not be relied upon as such. The information contained herein is believed to be from reliable sources but is not guaranteed as to accuracy or completeness, and the adviser undertakes no obligation to update or revise this material to reflect subsequent events or circumstances. Investing involves risk, including the possible loss of principal; past performance is not indicative of future results. Advisory recommendations are subject to individual suitability considerations, and this material may not be appropriate for all investors. Registration as an investment adviser does not imply any particular level of skill or training. Prospective clients should consult with qualified legal, tax, and financial professionals before making any investment decision and should carefully review the adviser’s Form ADV prior to engaging advisory services.”
