ESTATE PLANNING CONSIDERATIONS: WHAT TO DO BEFORE IT'S TOO LATE!
Limitation on Itemized Deductions
As we previously reported here, beginning in 2026, a new limitation on below the line itemized deductions provides that itemized deductions that would otherwise be allowable during a tax year will be reduced by 2/37 (i.e., 5.4%) for taxpayers in the highest income tax bracket. This new rule will effectively cap the tax benefit of itemized deductions at 35% for the highest earners. There are certain actions which may be taken to ameliorate your tax liability. You should consider contacting your tax advisor to discuss how trust and estate expenses and possibly how your own itemized expenses should be paid and explore some of the following options:
- Consider use of or adopting a November 30, 2025 fiscal year, if permitted, so that the next fiscal year will begin on December 1, 2025. In doing so, the new limitation will not apply to either fiscal year.
- For decedents dying in 2024 or 2025, consider paying itemized expenses in 2025, if possible, prior to the new limitation coming into effect.
- Consider deducting legal, trustee, and accounting fees on the estate tax return in the case of a taxable estate.
Changes to Charitable Giving
Beginning on January 1, 2026, changes to the deductibility of charitable contributions under the One Big Beautiful Bill Act (“OBBBA”) will go into effect, impacting both itemizers and non-itemizers (i.e., taxpayers who use the standard deduction).
The new rules for itemizers and non-itemizers, described below, do not alter the rules for qualified charitable distributions (“QCDs”) from an individual retirement account (“IRA”). In 2025, if you are 70½ or older, you may donate up to $108,000 directly from your IRA to a qualified charity without it being included in your taxable income and counting towards your required minimum distribution. In 2026, the maximum QCD will increase from $108,000 to $115,000.
Itemizers
OBBBA will introduce three new tax provisions that could significantly influence decisions on charitable giving strategies for taxpayers who elect to itemize their deductions.
- Permanent Extension of the Adjusted Gross Income (“AGI”) Limits. The Tax Cuts and Jobs Act of 2017 temporarily increased the individual deduction limit for cash contributions made to public charities from 50% to 60% of a taxpayer’s AGI and was scheduled to sunset after 2025. OBBBA permanently extends the existing ability to deduct up to 60% of AGI for cash contributions to public charities.
- New Limitation on Itemized Deductions. As discussed in the prior section of this alert, pursuant to the new limitation on itemized deductions rule, the maximum deduction rate for taxpayers in the highest bracket will be reduced from 37% to 35%. This means that if you are in the highest income tax bracket (37%), the benefit of your total itemized deductions will be capped at $0.35 per dollar.
- New Floor on Charitable Deductions. Beginning in 2026, a 0.5% floor will apply to charitable deductions, meaning that only a portion of your charitable contribution that exceeds 0.5% of your AGI will be deductible. For example, if you have $1,000,000 AGI, you will need to donate more than $5,000 (0.5% of $1,000,000) before any tax deduction applies. Amounts disallowed by the 0.5% floor may be eligible to be carried forward for each of the five succeeding tax years so long as the taxpayer also has a percentage limitation carryover (e.g., the 60% AGI limitation for cash contributions to public charities) for that year. Therefore, if your charitable contribution falls below the 0.5% floor and does not exceed any percentage limitation, the 0.5% floor disallowance itself is not carried forward. However, if your contribution (i) exceeds a percentage limitation and (ii) is subject to the 0.5% floor in that year, the floor disallowed amount may “ride along” with the percentage limitation excess and be available as part of the carryover in the succeeding five tax years.
The new rules on charitable deductions will have a significant impact on taxpayers who elect to itemize their deductions. Taxpayers will need to consider the 0.5% floor on charitable deductions, the limitation on itemized deductions, and the AGI limitations on certain charitable contributions (e.g., the 60% AGI limitation on cash to public charities). Consider the following example: you are in the highest federal tax bracket of 37%, you have an AGI of $1,000,000, and you plan to make a $100,000 charitable donation to a public charity.
- First, the AGI limitation on charitable contributions will be applied. The $100,000 cash donation will be fully deductible ($100,000 < 60% of $1,000,000 AGI).
- Next, the 0.5% floor on charitable deductions will be applied to your charitable contribution. In 2026, you donated $100,000, therefore, your 0.5% floor will be $5,000 (0.5% times $1,000,000 AGI), resulting in a total allowable deduction of $95,000.
- Finally, the limitation on itemized deductions must be applied. The charitable deduction will be reduced by 2/37 of the lesser of (i) the total amount of itemized deductions ($95,000), or (ii) the amount of your income that exceeds the threshold for the 37% bracket ($359,400).[1] For the 2026 taxable year, you have $95,000 in itemized deductions and the amount of your income which exceeds the 37% bracket is $359,400.
Consequently, you will only have a $89,870 itemized charitable deduction in 2026, despite your total $100,000 charitable contribution for the year; whereas, if you were to make this contribution in 2025, you would have been able to deduct the full charitable contribution of $100,000.[2]
If you are planning to make charitable contributions and you elect to itemize your deductions, you should consider contacting your counsel to discuss planning opportunities as 2026 approaches. Some considerations include whether to:
- accelerate planned giving into 2025 to take advantage of the current deduction rules.
- bunch multiple years of donations into a single year using a donor-advised fund (“DAF”). By contributing to a DAF in 2025, you may take the full deduction under the current rules and distribute funds to charities over time – even after the new floor takes effect in 2026.
Non-Itemizers
Taxpayers who use the standard deduction (i.e., those who do not elect to itemize) may claim an above-the-line charitable deduction of up to $1,000 for single filers or $2,000 for married couples filing jointly. For the charitable donation to be deductible, the contribution (1) must be a cash contribution and (2) made directly to a qualified public charity, such as a church or school.
A taxpayer may not deduct non-cash donations and gifts of assets such as clothing, furniture, stock, or real estate. Additionally, contributions to DAFs and private foundations will not qualify for this deduction.
If you are planning to make a charitable contribution this year and you do not elect to itemize your deductions, you may consider deferring your qualified cash donations to 2026 to take advantage of the charitable deduction.
2026 CHANGES IN FEDERAL INDIVIDUAL TAX LAW PROVISIONS
Federal Estate, Gift, and Generation-Skipping Transfer Taxes
The gift tax, estate tax, and generation-skipping transfer tax are imposed on the fair market value of assets at the time of transfer. By gifting and making transfers now, you may utilize your exclusions and exemptions and freeze the current values of your assets and pass on any future appreciation to the next generation.
Lifetime Exemption
Beginning in 2026, the lifetime federal estate and gift tax exemption will increase from $13.99 million for 2025 ($27.98 million for married couples) to $15 million for 2026 ($30 million for married couples). This means that a married couple may shield a total of $30 million without having to pay any federal estate or gift tax. For married couples that fully utilized all of their lifetime exemption by making lifetime gifts, they may give away another $2,020,000 starting in 2026 (or $1,010,000 per individual) without paying additional tax.
Annual Gift Tax Exclusion
In addition to the lifetime federal estate and gift tax exemption, the IRS allows you to gift a certain amount per recipient on a tax-free basis without using any of your lifetime estate and gift tax exemption. In 2026, the annual gift tax exclusion will remain at $19,000 per recipient (or $38,000 for married donors). This means you may give up to $19,000 per recipient (or $38,000 for married donors) without incurring a gift tax or using your lifetime exemption.
For example, if you have two children and four grandchildren, you may transfer up to $114,000 (or $228,000 for married donors) to your descendants without touching your $15 million (or $30 million for married donors) lifetime federal estate and gift tax exemption.
You may want to consider any of the following annual exclusion giving strategies:
- Make direct payments to an educational institution for family members.
- Make direct payments to medical providers for qualifying medical expenses for family members.
- Funding a 529 plan for children or grandchildren.
- Superfund a 529 plan for children or grandchildren.
- Funding a Roth IRA (or backdoor Roth) for children or grandchildren with earned income, meaning that your child or grandchild must be earning income from a W-2 job or self-employment (g., babysitting, dog walking, etc.).
Federal Individual Income Taxes
Income tax brackets have slightly increased for the 2026 tax year, with brackets rising by about 4% for lower-income ranges and roughly 2% for higher earners. The top 37% federal income tax bracket for 2026 will apply to married couples filing jointly with taxable incomes above $768,700 and to single filers with taxable incomes above $640,600. The 0% capital gains tax will apply to married filers with taxable incomes up to $98,900 and to single filers with taxable incomes up to $49,450. The standard deduction will increase to $32,200 for married filers and to $16,100 for single filers.
2026 CHANGES IN RETIREMENT CONTRIBUTION LIMITS
Inflation adjustments also apply to certain retirement account contribution limits. For 401(k) and other workplace defined contribution plans, the elective deferral limit will rise to $24,500. For those age 50 and older, “catch-up” deferrals may be made up to $8,000 in 2026 if the workplace plan permits a catch-up contribution. In addition, for certain high earning participants, catch-up contributions to 401(k) plans for 2026 and later years must be made with Roth after-tax elective deferrals unless the Internal Revenue Service or the Treasury Department again extends the effective date for the after-tax, catch-up deferrals. The maximum annual combined employee elective deferrals and employer contributions is $80,000 in 2026.
For IRAs, the contribution limit will rise to $7,500. Also, those 50 and older will be allowed to make additional “catch-up” contributions of $1,100 to IRAs.
For additional information, please contact an attorney in Gunster’s Private Wealth Services or Tax Practice group.
[1] Assuming the 37% bracket for single filers in 2026 starts at a taxable income of $640,600, the amount of your income that exceeds the threshold for the 37% is $359,400 ($1,000,000 AGI minus $640,600).
[2] Total itemized charitable deduction in 2026 = $89,870 = $100,000 (charitable contribution) - $5,000 (0.5% floor) - $5,130 (limitation on itemized deductions ($95,000 times 5.4%)).
YES! PLEASE SIGN ME UP TO RECEIVE EMAIL ALERTS FROM OTHER GUNSTER PRACTICE AREAS.
This publication is for general information only. It is not legal advice, and legal counsel should be contacted before any action is taken that might be influenced by this publication.
About Gunster
Gunster, Florida’s law firm for business, provides full-service legal counsel to leading organizations and individuals from its 13 offices statewide. Established in 1925, the firm has expanded, diversified and evolved, but always with a singular focus: Florida and its clients’ stake in it. A magnet for business-savvy attorneys who embrace collaboration for the greatest advantage of clients, Gunster’s growth has not been at the expense of personalized service but because of it. The firm serves clients from its offices in Boca Raton, Coral Gables, Fort Lauderdale, Jacksonville, Miami, Naples, Orlando, Palm Beach, Stuart, Tallahassee, Tampa, Vero Beach, and its headquarters in West Palm Beach. With more than 320 attorneys and consultants, and 300 committed support staff, Gunster is ranked among the top 200 largest law firms by the National Law Journal and has been recognized as one of the Top 100 Diverse Law Firms by Law360. More information about its practices, industries, offices and news is available at www.gunster.com.
