Donor Advised Funds: Bigger Tax Benefits in 2025
By Gabriel Mkhitarian, Tax Senior
The One Big Beautiful Bill Act (OBBBA), enacted in July 2025, imposes new limitations on charitable contribution deductions, which will reduce the tax benefit taxpayers can receive from charitable gifts. As the new rules will take effect on Jan. 1, 2026, philanthropy-minded taxpayers may wish to accelerate their charitable giving during the remainder of 2025 to secure the benefit of the current deduction rules before these new limitations apply (for more information, see Navigating the New Charitable Giving Rules Under the One Big Beautiful Bill Act: Floors, Ceilings and Strategic Planning). In light of this, taxpayers should consider utilizing a Donor-Advised Fund (DAF), as a strategy to fulfill both their philanthropic aspirations and tax-planning goals.
In essence, a DAF is a unique investment account designed specifically for making charitable contributions of cash, securities, tangible property and other assets. Such accounts are typically administered by community foundations and major investment advisors – such as Fidelity and Schwab – among many others. The donor becomes entitled to the charitable deduction as soon as the contribution is received by the DAF, which, in turn, makes distributions to qualified public charities at a later date. The donor’s opportunities for charitable giving can be enhanced if the DAF’s assets appreciate.
While the contribution is irrevocable – meaning the donor permanently relinquishes ownership of the contributed asset and the transaction cannot be reversed – the donor retains advisory privileges over future distributions. This allows them to recommend grants to specific charities, subject to the administrator’s guidelines. In effect, a donor can contribute to a DAF, claim the deduction in the year of contribution and later determine where the funds will ultimately be directed. DAFs are not just for large donors as many DAF administrators do not require any minimum contributions to establish and maintain the DAF account.
Taxpayers may choose from a wide range of property types to contribute to a DAF, but DAF’s prefer assets with a high level of liquidity, such as cash or appreciated securities. The latter option is particularly advantageous, as donating stock provides a twofold benefit: the donor avoids paying capital gains tax while simultaneously deducting the full fair market value of the donated securities (subject to the 30% Adjusted Gross Income limitation and provided that the securities have been held for more than one year). Other options include non-cash assets such as real estate or collectibles. However, one important caveat in this scenario is that if the fair market value of the contributed property equals or exceeds $5,000, a qualified independent appraisal is required to substantiate the amount of the deduction, which adds a layer of complexity to the process.
Since the changes under OBBBA reduce the benefit of donations made in 2026 onward, a DAF can serve as an especially effective tool, allowing donors to complete their charitable contributions in 2025 and lock in the current deduction benefits, while later deciding on the specific charities to receive their donations. Consider funding a DAF for your 2025 contributions.
Please contact us to discuss how you may benefit from establishing or funding your DAF.
