Charitable Giving Provisions of the CARES Act
We have previously discussed the Paycheck Protection Program, and plenty of other commentary has focused on the 2020 Recovery Rebates for individuals, both of which were enacted under Coronavirus Aid, Relief, and Economic Security (CARES) Act. In addition to these headline-grabbing provisions, the CARES Act also contains provisions designed to encourage increased charitable giving as part of the response to the COVID-19 pandemic.
Above the line deduction for taxpayers who do not itemize deductions. Section 2204 of the CARES Act provides for a reduction of up to $300 to a taxpayer’s adjusted gross income (AGI) for cash contributions to certain charitable organizations (with exclusions for contributions to certain supporting organizations and Donor Advised Funds). This only applies to individuals who will not itemize their deductions in their tax return, allowing them to claim this $300 reduction to AGI in addition to the standard deduction that was increased under the Tax Cuts and Jobs Act (TCJA). Interestingly, this change appears to be permanent, as it applies to all taxable years after 2019.
Increases in limitations on charitable contribution deduction limits for 2020. For taxpayers who itemize their deductions, Section 2205 of the CARES Act provides impactful increases in the charitable deduction limits under §170 of the Internal Revenue Code. For individual taxpayers, the deduction limit is completely removed for 2020. This means that a taxpayer can deduct up to 100% of their contribution base (AGI computed without regard to any net operating loss carryback) for qualified contributions. As with the above the line deduction mentioned above, “qualified contributions” are cash contributions to charitable organizations, excluding contributions to certain supporting organizations and Donor Advised Funds. However, contributions to excluded organizations can still be made subject to the contribution limits that were previously increased under the Tax Cuts and Jobs Act (TCJA). So, for example, a donor can still give a cash contribution of 60% of their contribution base to a Donor Advised Fund, and then give the remaining 40% of their contribution base in qualified contributions, and receive a 100% deduction.
For corporations, the deduction limit is increased from 10% to 25% for qualified contributions. For both individuals and corporations, these modified deduction limits only apply to charitable contributions made in 2020, though any excess amounts donated in 2020 can still be rolled-over for up to five years.
If you have any questions about these charitable deduction provisions under the CARES Act or any other tax-planning issues, you can reach the MendenFreiman tax planning team here. If you are not yet a client but are interested in information regarding our tax planning services, submit a request through our contact form and someone from our team will reach out to you shortly.