On March 27, 2020, in response to the COVID-19 emergency, President Trump signed into law the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) to provide emergency assistance and health care response for individuals, families, and businesses affected by the coronavirus pandemic.
One provision of the CARES Act, which will impact the charitable giving of individuals who do not elect to itemize their deductions, is an allowance of an above-the-line deduction for charitable contributions not to exceed $300. Generally, individuals who do not itemize their deductions receive no tax benefit for charitable contributions they make during the year. This provision is for all taxable years beginning after December 31, 2019. It applies to cash donations to public charities and private foundations that are 50% charities (private operating foundations, conduit foundations and common fund private foundations) but does not include gifts to supporting organizations, donor-advised funds or private grant-making foundations.
The CARES Act also modifies the limitations on charitable contributions for individuals who do itemize their deductions for the 2020 year only. Generally, cash contributions to public charities that an individual may deduct are limited to 60% of their adjusted gross income (AGI). The CARES Act increases the limit on those deductions to 100% of the individual’s AGI, effectively suspending any limitation for the 2020 year. This provision applies to cash contributions only and not to donations of any non-cash items, where the 20% and 30% limitations apply. It also only applies to contributions made to public charities and private foundations that are 50% charities and does not include gifts to supporting organizations, donor-advised funds and grant-making private foundations. Any contributions made in excess of the thresholds are carried forward for five years.
In the case of a corporation, whereas their deductible contributions are generally limited to 10% of the corporation’s taxable income, the CARES Act increases the limitation to 25% of their taxable income.