How donor-advised funds work, and what changed for them in 2026

A donor-advised fund is a charitable account held at a public charity, called the sponsoring organization. A donor puts cash or other assets into the account, takes a tax deduction for the gift, and then recommends grants to other charities over time. Once the money is in, the sponsor owns and controls it. The donor keeps only the right to advise on how it is granted and invested.

Who controls the money

The tax code defines a donor-advised fund as a fund or account that is separately identified by reference to a donor’s contributions, is owned and controlled by a sponsoring organization, and over which the donor, or someone the donor appoints, has or expects to have advisory privileges because of being a donor, under section 4966. A fund that makes grants only to a single named organization is not a donor-advised fund.

The sponsor must be a charity that is not a private foundation. Sponsors range widely: in fiscal 2024 there were 1,512 of them in the United States, including 103 national sponsors, 803 community foundations and 606 single-issue charities, according to the Donor Advised Fund Research Collaborative, which compiles the figures from the Schedule D filed with sponsors’ Form 990 returns.

“Once the donor makes the contribution, the organization has legal control over it,” the IRS says.

When the deduction comes

The donor claims the deduction in the year the money goes into the fund, not when grants go out. To claim it, the donor needs a contemporaneous written acknowledgment from the sponsor that it has exclusive legal control over the assets contributed, under section 170(f)(18). The same provision bars deductions for gifts to funds held by certain sponsors, including a type III supporting organization that is not functionally integrated.

What a fund may not do

Two excise taxes police how the money leaves a fund. Under section 4966, a distribution to any individual is a taxable distribution, as is a distribution for a non-charitable purpose or one where the sponsor does not exercise required oversight. The sponsor pays a 20% tax on a taxable distribution, and a fund manager who knowingly agrees to it pays 5%. Grants to public charities, other than certain supporting organizations, are generally excepted.

Under section 4967, a donor or adviser who recommends a grant that gives them, or certain related people, a benefit that is more than incidental owes a tax of 125% of the benefit, and a fund manager who knowingly approves it owes 10%. Certain donor-advised funds are also covered by the limits on excess business holdings that apply to private foundations.

The IRS has warned about arrangements marketed as donor-advised funds that appear designed to generate questionable deductions and give donors improper economic benefits. In appropriate cases, it says, it may disallow the deductions, impose excise taxes on the sponsor, its managers or donors, or revoke the organization’s exemption.

What changed in 2026

The new deduction for people who take the standard deduction, which allows up to $1,000 of cash gifts, or $2,000 on a joint return, starting with tax year 2026, does not apply to gifts to donor-advised funds. The statute excludes gifts made to establish or maintain a donor-advised fund, and gifts to supporting organizations, and the IRS’s guidance on the 2025 tax law says so directly. A donor who does not itemize gets that deduction only by giving cash directly to an eligible charity.

For donors who itemize, gifts to a donor-advised fund are subject to the new floor that allows a deduction only for gifts above 0.5% of the donor’s contribution base. Our explainer on the 2026 deduction rules covers the details.

How big donor-advised funds have become

The collaborative, which took over the annual report from the National Philanthropic Trust in 2025, says account growth was driven mainly by donation processors, national sponsors that handle workplace giving and mass online donations. Its figures, revised in spring 2026, are drawn from IRS filings for fiscal 2024, the latest year it covers.

How the payout compares with foundations

The 5% minimum payout in section 4942 is a rule for private foundations, and a sponsoring organization is by definition not a private foundation, so the rule does not reach donor-advised fund accounts. The collaborative’s payout rate, 25.2% in fiscal 2024, is an overall figure for all donor-advised funds combined. It is not a legal requirement, and it says nothing about how much any single account pays out. For the rules that do apply to foundations, see our explainer on how private foundations work.