Charitable bunching under OBBBA: When it makes sense and when it doesn’t

With the tax-law changes under the One Big Beautiful Bill Act (OBBBA), you may be hearing a lot about “charitable bunching.” But what is it? In short, bunching is a tax-smart strategy that combines several years of charitable giving into a single tax year, potentially increasing the amount that is deductible.

Beginning in tax year 2026, OBBBA introduces a new 0.5%-of-AGI floor on charitable deductions for taxpayers who itemize. That means some of your charitable giving may not be deductible every year you give, and over time those lost deductions can add up. This makes bunching a powerful strategy, especially when paired with a donor-advised fund (DAF). Understanding when charitable bunching pays off can help you make more tax-efficient giving decisions. 

In this article:

• What is charitable bunching?
• Why the 0.5% AGI floor makes bunching newly powerful
• Bunching works whether you're below, at, or above the floor
• When bunching works well — and when it doesn’t

• Frequently asked questions

  
   

What is charitable bunching?

Charitable bunching is the practice of combining multiple years of charitable giving into a single tax year. You might contribute several years' worth of charitable gifts to a donor-advised fund, claim the deduction in the contribution year, and then recommend grants to charities over time. Under OBBBA, bunching can help reduce repeated exposure to the new 0.5%-of-AGI floor.

Why the 0.5% AGI floor makes bunching powerful

The new 0.5%-of-AGI floor is one of the most significant changes to charitable giving under OBBBA — and the provision that makes bunching newly powerful. Because you must clear the floor each year you itemize, consolidating several years of giving into one year lets you absorb that floor once instead of every year. As a result, a larger portion of your charitable contribution may become deductible.

A worked example: one donor, two strategies

These provisions are easiest to see in a single example. Consider a married couple with $700,000 in AGI in the 35% tax bracket who give $40,000 a year to charity.

Giving annually (no bunching): Each year their .5% AGI floor is $3,500 (700,000 x 0.5), so only $36,500 of their $40,000 gift is deductible. In the 35% tax bracket, this results in $9,490 tax savings, or $28,470 over 3 years.

Bunching three years into one: They contribute $120,000 to a DAF in a single year ($40,000 × 3). The floor still absorbs $3,500, leaving $116,500 deductible. In the 35% tax bracket, this results in $29,125 tax savings, a $655 increase over giving annually every 3 years.

Grants keep flowing to charities on their usual schedule from the DAF throughout. The donor's charitable support remains unchanged; only the timing of the tax deduction differs.

Bunching works whether you're below, at, or above the floor

The benefit of charitable bunching doesn't depend on your annual giving falling at a specific level relative to the 0.5%-of-AGI floor. Because the floor applies each year, combining multiple years of giving into a single contribution can increase the amount that's deductible in several situations. Annual giving is:

• Below the floor: Bunching may turn a non-deductible gift into a partially deductible one.

• At the floor: Bunching can create deductible amounts that otherwise wouldn't exist.

• Above the floor: Bunching can still help by reducing the number of times the floor reduces your deduction.

In all three cases, the benefit comes from encountering the floor once instead of repeatedly over multiple years. While bunching can help regardless of your giving level, its relative impact is often most pronounced when annual giving falls near the 0.5%-of-AGI floor.

When bunching works well

• When your annual giving repeatedly falls below or near the 0.5% floor. If you have $640,000 of AGI and give $3,000 a year, none of your contribution is deductible. Combine three years of giving ($9,000) into one year, and $5,800 may be deductible. The more years you consolidate, the more you dilute the floor’s bite — you absorb the 0.5% floor once, not yearly. 

• When your bunched contribution lands in a lower-income year. When you bunch can matter as much as the decision to bunch. A lower income year may reduce the 0.5% floor, although the deduction may also be applied against a lower marginal tax rate. Donors should evaluate both factors with their tax advisor.

• When it doubles as portfolio rebalancing. Contributing concentrated, appreciated stock to a DAF removes the position, can help avoid the capital-gains tax a sale would trigger, and typically allows for a deduction at the asset’s full market value. For stock bought long ago at a low price (a “low cost basis”), the avoided gains can rival the deduction itself.

When bunching may not make sense

• When your contribution exceeds deduction limits. Very large bunched gifts may exceed the AGI-based limits on charitable deductions, generally 60% of AGI for cash gifts and 30% for appreciated assets. Excess amounts may be carried forward for up to five years, delaying some of the tax benefit of bunching. 

• When liquidity or grantmaking timing would be compromised. Bunching requires committing funds up front. If combining several years of giving would strain your liquidity or pressure you to recommend grants faster than planned, it may not be the right fit.

   

The bottom line

Bunching under OBBBA is not a one-size-fits-all strategy, but the 0.5%-of-AGI floor is a powerful incentive. The core idea is simple: absorb the floor once instead of every year, and more of your giving becomes deductible. Bunching can help whether your annual giving falls below, at, or above the floor, though the impact is often most pronounced when giving falls near the threshold. Bunching may also be useful when your income is expected to dip, and when appreciated assets can do double duty.

You may benefit most when you and your advisor run the numbers against the new floor and your income trajectory — and let the arithmetic decide. With year-end approaching, now is the time to model it. The goal isn’t simply to save on taxes but to make the most informed decision for your charitable giving strategy.

Make bunching possible with a donor-advised fund

A Vanguard Charitable DAF can help you put bunching into action — a sound financial decision that preserves flexibility to support the causes you care about on your timeline.

This information is provided for general educational purposes and is not intended as tax or legal advice. Consult a qualified tax or legal advisor about your individual circumstances.