The Order of Operations for Charitable Giving in 2026: Which Assets to Give First, and How the Deduction Is Calculated

Charitable giving in 2026 involves two sequences, and getting both right matters more than it used to. The first is which assets to give, and for most donors the order is: qualified charitable distributions from an IRA first if you are 70½ or older, then appreciated long-term securities, then cash, with assets showing a loss sold rather than given. The second is how the tax code computes the deduction, and it runs in a fixed order: the AGI percentage limits first cap what is deductible this year, with the excess carried forward for up to five years; the new 0.5% of AGI floor then comes off what remains, charged first against the gift categories with the lowest AGI limits; and finally, for top-bracket taxpayers, the 2/37 rule trims the total. Understanding both sequences explains why a QCD now beats a deducted gift of the same size and why a gift's form can matter as much as its amount.

Which assets should you give first?

1. Qualified charitable distributions, if you are 70½ or older.A QCD moves money directly from an IRA to a public charity, up to $111,000 per person in 2026. It is excluded from income rather than deducted, so it never meets the 0.5% floor, the AGI limits, or the 2/37 rule. It lowers adjusted gross income, which can reduce Medicare premium surcharges and the taxable share of Social Security, and it counts toward your required minimum distribution. It works whether or not you itemize. QCDs cannot go to donor-advised funds, supporting organizations, or most private foundations. The RMD connection is covered in required minimum distributions.

2. Appreciated securities held longer than one year.Giving shares directly to a public charity or donor-advised fund lets you deduct full fair market value and never pay tax on the gain. The trade-off is a lower AGI limit: 30% of AGI for gifts to public charities, versus 60% for cash.

3. Cash.Cash carries the highest AGI limit and is the only form that qualifies for the new non-itemizer deduction, but it carries no embedded-gain benefit. If you would rather keep a particular stock, a useful technique is to give the shares and use the cash you would have given to buy the position back, which resets your cost basis to today's price.

Never give a position with a loss.Selling it first lets you deduct the capital loss; giving it wastes the loss. Sell, harvest the loss, and give the cash.

How is the deduction actually calculated?

For donors who itemize, the code applies four steps in a fixed sequence.

Step 1: the AGI percentage limits.Each category of gift is limited to its share of AGI: 60% for cash to public charities, 30% for appreciated property to public charities and for cash to private foundations, and 20% for appreciated property to private foundations, with the categories interacting so that the overall total cannot exceed the highest applicable limit. The 60% cash limit, originally temporary, is now permanent.

Step 2: the 0.5% floor.Beginning in 2026, the contributions otherwise allowable after those limits are deductible only to the extent they exceed 0.5% of your contribution base, which is essentially AGI. The statute specifies which gifts absorb the floor first: those in the lowest-limit categories. The order is capital gain property given to private non-operating foundations (the 20% category), then capital gain property given to public charities (30%), then other gifts to private foundations (30%), then qualified conservation contributions, then the 50% category, and last, cash to public charities (60%).

Step 3: carryforwards.Gifts above the AGI limits carry forward for up to five years, keeping their category. Current-year gifts are deducted first, then carryforwards, oldest first. Amounts disallowed by the 0.5% floor are added to the carryforward only in a year that already produces a carryforward under the AGI limits; otherwise they are lost permanently. Exactly how that works when the floor falls on a different category from the one that exceeded its limit awaits IRS guidance. Either way, the change is meaningful: a small gift that falls entirely under the floor produces no deduction now or later.

Step 4: the 2/37 rule.After every other limit, top-bracket taxpayers reduce total itemized deductions by 2/37 of the lesser of those deductions or income above the start of the 37% bracket, which effectively caps a deduction's value at about 35 cents per dollar. The mechanics are covered in the 2/37 rule.

The IRS has not yet issued forms or regulations showing how every floor and carryforward calculation will be reported, so complex multi-category years warrant your CPA's review before filing.

Why does this ordering change the strategy?

Three implications follow.

First, a QCD is now worth more than an equal itemized gift for anyone eligible, because it skips the floor and the 2/37 cut and lowers AGI besides.

Second, because the floor is charged first against appreciated-stock gifts when you give both stock and cash, a donor making both kinds of gifts loses some of the deduction on the stock first, not the cash. That rarely changes whether stock is the right gift, since avoiding capital gains tax usually dwarfs the floor, but it matters when sizing carryforwards.

Third, small annual gifts are the biggest casualty. A household with $200,000 of AGI that gives $500 a year loses the entire deduction to the $1,000 floor. Bunching several years of gifts into one, typically through a donor-advised fund, absorbs the floor once, as described in the charitable giving playbook. In the off years, the non-itemizer deduction of up to $1,000 single or $2,000 joint for cash given directly to public charities, not to donor-advised funds, picks up some value without itemizing.

A worked example: same generosity, different order

The following is a hypothetical illustration using 2026 rules for a married couple filing jointly, both 72, ignoring state tax. They have $900,000 of AGI, including a $120,000 required minimum distribution, $10,000 of deductible state and local taxes, and they intend to give $250,000. They also own stock worth $139,000 with a $39,000 cost basis.

Path A: give $250,000 in cash.The floor removes $4,500. Their itemized deductions total $255,500, and because their income is $131,300 above the $768,700 top-bracket threshold, the 2/37 rule cuts $7,097. Allowed deductions: about $248,400. Taxable income: about $651,600. AGI stays at $900,000.

Path B: give a $111,000 QCD and $139,000 of the appreciated stock.The QCD covers $111,000 of their $120,000 RMD (the remaining $9,000 is withdrawn and taxed as usual) and drops AGI to $789,000. The floor removes $3,945, charged first against the stock gift, which remains well within its 30% limit. Their itemized deductions total about $145,055, and because their income is now only $20,300 above the top-bracket threshold, the 2/37 cut shrinks to $1,097. Taxable income: about $645,000.

Path B produces lower taxable income and $111,000 less AGI, which can reduce Medicare surcharges and state tax. It also keeps $139,000 of cash in their hands; if they use it to repurchase the same stock, their basis resets from $39,000 to $139,000, eliminating $100,000 of embedded gain that would otherwise cost about $23,800 in federal tax at a 23.8% rate if sold during their lifetimes. The charities receive the same $250,000 either way. The figures are hypothetical and simplified.

Key numbers at a glance

Frequently asked questions

What should I give first, cash or stock?If you are 70½ or older, start with qualified charitable distributions from your IRA. After that, appreciated securities held more than a year usually beat cash because you deduct full value and avoid capital gains tax. Give cash when you need the higher 60% limit or a vehicle that requires cash.

How does the 0.5% charitable floor work?Beginning in 2026, itemized charitable deductions are allowed only above 0.5% of AGI, applied after the AGI percentage limits. The floor is charged first against gifts in the lowest-limit categories, such as appreciated stock, and the disallowed amount carries forward only in a year that also produces a carryforward under the AGI limits.

Do QCDs count against the 0.5% floor or the 2/37 rule?No. A QCD is excluded from income rather than deducted, so the floor, the AGI percentage limits, and the 2/37 rule do not apply. It also counts toward your required minimum distribution.

Can I carry forward charitable contributions I cannot deduct?Yes, gifts above the AGI limits carry forward for five years. Amounts lost to the 0.5% floor carry forward only from a year that also produces an AGI-limit carryforward; otherwise they are lost.

Can I take a charitable deduction without itemizing in 2026?Yes. Non-itemizers can deduct up to $1,000, or $2,000 for joint filers, of cash gifts made directly to public charities. Gifts to donor-advised funds and supporting organizations do not qualify.

Should I donate stock that has lost value?No. Sell it, deduct the capital loss, and give the cash. Giving a loss position forfeits the loss.

Sources

• 26 U.S. Code § 170: Charitable, etc., contributions and gifts, Legal Information Institute, Cornell Law School
• 26 U.S. Code § 68: Overall limitation on itemized deductions, Legal Information Institute, Cornell Law School
• 26 U.S. Code § 408: Individual retirement accounts, Legal Information Institute, Cornell Law School
• Notice 2025-67: 2026 amounts relating to retirement plans and IRAs, Internal Revenue Service
• Charitable giving after the OBBBA: the 2026 outlook, Taft
• Charitable giving after OBBBA: changes for individuals in 2026, PKF O'Connor Davies