By Harry Prabandham · Updated September 27, 2026
Tax Planning
Donor-Advised Funds: How They Work Under 2026 Tax Rules
A donor-advised fund takes an irrevocable gift now, gives a deduction that year, and lets you recommend grants to charities over time.
Donor-Advised Funds: How They Work Under 2026 Tax Rules
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What is a donor-advised fund?
- A donor-advised fund (DAF) is an account held by a public charity, called the sponsor, that accepts your gift and later makes grants you recommend.
- The gift is irrevocable and deductible in the year you make it, even if grants go out over many years.
- The sponsor legally owns the assets, so your grant recommendations are advisory, though sponsors routinely follow them for eligible charities.
- Sponsors include national charities affiliated with brokerage firms, community foundations, and some religious and university programs.
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Full Guide
What is a donor-advised fund?
- A donor-advised fund (DAF) is an account held by a public charity, called the sponsor, that accepts your gift and later makes grants you recommend.
- The gift is irrevocable and deductible in the year you make it, even if grants go out over many years.
- The sponsor legally owns the assets, so your grant recommendations are advisory, though sponsors routinely follow them for eligible charities.
- Sponsors include national charities affiliated with brokerage firms, community foundations, and some religious and university programs.
What can you contribute, and how is it deducted?
- Cash is deductible up to 60% of adjusted gross income, a limit the 2025 tax law made permanent.
- Publicly traded stock held more than a year is generally deductible at fair market value, up to 30% of AGI, with no capital gains tax on the appreciation.
- Assets held one year or less are generally deductible only at cost basis, which removes most of the benefit.
- Private company stock and other non-cash gifts claimed above $5,000 generally require a qualified appraisal and Form 8283.
- Deductions above the AGI limits carry forward for up to five years.
What changed for charitable deductions in 2026?
- Itemizers can deduct charitable gifts only to the extent they exceed 0.5% of AGI, starting in 2026.
- For taxpayers in the 37% bracket, the tax value of itemized deductions, including charitable gifts, is capped at 35%.
- A new deduction for non-itemizers, up to $1,000 single or $2,000 joint for cash gifts, does not apply to DAF contributions.
- These rules can make it more efficient to concentrate several years of giving into one high-income year rather than spreading it evenly.
How can a DAF fit around a liquidity event?
- An IPO, tender offer, or large RSU vest can create a one-time income spike, which is when a deduction may be worth the most.
- Contributing long-held shares, instead of selling and giving cash, can avoid the capital gain while still funding future grants.
- Shares must be transferred before a sale is legally committed; if the sale is already binding, the IRS may tax you on the gain anyway.
- Lockups, insider policies, and transfer restrictions can limit which shares you can give and when, so check them early.
Rules once money is in the fund
- Grants must go to qualified charities, generally 501(c)(3) public charities, and not to individuals.
- You can't use grants to pay personal pledges, event tickets, tuition, or other benefits to you, which can trigger excise taxes.
- Assets are invested in the sponsor's menu of options, and sponsor administrative and fund fees reduce what reaches charities.
- Federal law imposes no annual payout requirement on DAFs, though many sponsors have their own inactivity policies.
DAF versus private foundation
- A private foundation offers more control, such as hiring staff, running programs, and making certain grants to individuals.
- Foundations must generally distribute about 5% of assets each year, file Form 990-PF, and pay an excise tax on net investment income.
- Deduction limits for gifts to non-operating foundations are lower, generally 30% of AGI for cash and 20% for appreciated stock.
- Many families find a DAF simpler, while some with large, long-term giving plans use both.
Key takeaways
- A DAF separates the timing of your tax deduction from the timing of your grants.
- Giving long-held appreciated shares can avoid capital gains tax and may produce a larger deduction than giving cash.
- The 2026 rules add a 0.5% floor and a 35% cap for top-bracket filers, which favor planned, concentrated giving years.
- This is educational only; confirm deduction limits and timing with a CPA, and deed-of-gift details with the sponsor.
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