CARES ACT UPDATES FOR DONORS

NEW ABOVE-THE-LINE CHARITABLE DEDUCTION

Included in the CARES Act is a $300 above-the-line charitable tax deduction for certain qualified charitable contributions. This will allow taxpayers who do not itemize to receive a tax benefit for a qualified gift to charity up to $300.

• Under current law, a taxpayer may only claim a charitable contribution deduction if he/she elects to itemize deductions, rather than claiming the standard deduction.
• With the increased standard deductions under the Tax Cuts and Jobs Act of 2017 (TCJA), the number of taxpayers electing to itemize is much smaller.
• This new provision of the CARES Act allows taxpayers who do not itemize to claim a deduction of up to $300 for qualified charitable contributions.
• A qualified charitable contribution must be made in cash and cannot be made to certain charities, including donor advised funds, supporting organizations, and organizations, such as many non-operating private foundations, that are ordinarily subject to a 30% limitation on charitable deductions.

Under the CARES Act, “eligible individuals” who do not itemize are allowed to take the above-the-line deduction, so it is not possible to itemize and also take advantage of this deduction. Additionally, it appears that the $300 maximum deduction is applicable per tax return so that a couple filing a joint return is limited to a $300 deduction, but this is somewhat unclear at this time.  These amendments apply to taxable years beginning after December 31, 2019, and there is no provision for this to sunset. Finally, there is nothing in the bill that requires charitable gifts eligible for this above-the-line deduction to be paid only to charities working directly with coronavirus relief, so donors may give to a wide variety of charities. 


INCREASED PERCENTAGE LIMITATIONS FOR CHARITABLE CONTRIBUTIONS

The CARES Act temporarily modifies certain percentage limitations on charitable contributions made during 2020.

• Under current law, the total deduction for contributions to charitable organizations by individuals generally is limited to 50% or 60% of adjusted gross income (the TCJA increased the 50% limit to 60% for cash gifts to most public charities) and 30% of adjusted gross income (for gifts to charitable organizations that do not qualify for the 50% limitation).
• Additional rules can reduce the limitation to 20% depending on the type of property gifted.
• Deductions for contributions to charitable organizations by corporations generally are limited to 10% of taxable income. In the case of charitable contributions of food, a 15% limitation applies instead.
• Under the CARES Act, the 50% limitation for individual taxpayer gifts is suspended for qualified contributions, and the 10% limitation for corporations would be increased to 25% for qualified contributions.

A qualified contribution is a cash gift made during calendar year 2020. This provision of the CARES Act excludes gifts to donor advised funds and supporting organizations. The 30% limitation applicable to private non-operating foundations was not changed. In addition, the 15% limitation for contributions of food would be increased to 25% for any charitable contributions of food during 2020.
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Source: Council on Foundations
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