Charitable Provisions in the CARES Act and the Impact on Philanthropy

The President has signed the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) into law. The law includes a number of charitable incentives and benefits for nonprofits in 2020 and beyond.

Here are some of the provisions that will impact philanthropy and apply to tax years beginning in 2020:

1. Non-Itemizer Above-the-Line Charitable Deduction. The law includes an above-the-line charitable deduction of up to $300 per tax-filing unit (according to The Joint Committee on Taxation) for non-itemizers. For example, a married couple who file a joint return and do not itemize can deduct $300. The above-the-line deduction will give nonprofit supporters who normally do not receive tax benefits, incentive to make gifts to their favorite causes this year.
2. For Cash Gifts Only. The universal deduction is limited to gifts of cash donated to a qualified charity. It's interesting that gifts of non-cash assets were excluded here. Perhaps the drafters thought that gifts of cash are simple and more likely to come from non-itemizers. Also the $300 amount is too low for most non-cash gifts.
3. Not for DAFs and SOs. The universal deduction is not available for gifts made to donor advised funds (DAFs) or supporting organizations (SOs). Congress is exercising its growing hostility towards DAFs here. But, how many non-itemizers are actually making gifts to DAFs and SOs anyway? Not many.
4. 100% of AGI Limit for Cash Contributions! This provision is huge for charitable giving! This year, taxpayers may deduct gifts of cash regardless of whether given to a public charity or private operating foundation and deduct them up to their contribution base --100% of their adjusted gross income (AGI). Gifts of cash made to public charities are normally limited to 60% of AGI. This year, if a donor has an AGI of $1 million, he can make a $1 million cash gift to a public charity and take a $1 million deduction that could wipe out his tax liability. A donor could make a substantial deductible cash gift to a private operating foundation this year (the tax treatment is the same as a gift made to a public charity). Gifts to DAFs, SOs and private non-operating foundations do not qualify for the temporary suspension of deduction limitations.
5. Update: AGI Limit on Noncash Gifts Where Deduction is Reduced to Basis. I have spoken with a number of sources in Washington D.C regarding different interpretations on the application of this provision where a taxpayer gifting noncash assets elects to reduce their deductions?to basis.?I have been advised that the 50% deduction limit still applies. Because the contributions at issue are not cash, they would fall into the catchall of "any charitable contribution" (See Sec. 170(a)(1)) subject to the 50% of AGI deduction limit (later changed to 60% of AGI for cash gifts). This was the interpretation intended by Congress and I have been told that this is how the IRS will interpret the provision.
6. Normal Carry-Forward Rules Apply. Any deductions that cannot be taken in a single year may be carried forward an additional five years.
7. Corporate Gift Deduction Limit 25%. Normally deductions for charitable gifts made from corporations are limited to 10% of taxable income. The law increases the deduction limitation to 25%. The extra benefit should incentivize some corporations to give back to charities in their communities and those combating the virus and helping with relief efforts this year. Under normal rules, corporations may also carry-forward excess deductions over an additional five years.
8. Food Contribution Limit Deductions Raised to 25%. Normally deductions for corporations donating food inventory are limited to 15% of business net income. The law increases the food donation deduction limit to 25%, hoping to incentivize more of these contributions to charities this year.

I have just covered the charitable giving provisions in the CARES Act here. There are other provisions that help nonprofits with day-to-day management of their businesses and overhead expenses. What do you think about these provisions and how they might help donors support your cause this year?

Copyright Notice & Disclaimer The above content is subject to copyright. ? Copyright Kristen Jaarda 2020. All rights Reserved. The above information is provided for educational purposes only, not to provide specific legal advice. By using this information, you understand and agree that there is no attorney-client relationship between yourself and the copyright holder named above and that this information is not a substitute for competent legal advice from a licensed professional attorney in your state.