The CARES Act Increases Donation Tax Deductibility
The CARES Act that Congress passed in response to the COVID-19 crisis is best known for its Payroll Protection Program SBA loans and other measures of cash relief. Getting less attention are the provisions that increase the tax-deductibility of donations to charities. But these changes could mean a lot to cash-starved nonprofits if it incentivizes giving.
The tax reform bill that passed in 2017 essentially doubled the standard deduction for individual and joint tax filers. One of the most substantial consequences of that change was that the percentage of taxpayers who itemize their deductions went from around 35% to 6%. Though the vast majority of people saw their tax burden go down, it also meant that over 95% of taxpayers could no longer write off their gifts to charity.
The Coronavirus Aid, Relief, and Economic Security (CARES) Act creates two, temporary changes to the tax treatment of such donations. One is a universal deduction targeted primarily at the 90+% of standard deduction taxpayers, and the other is meant to incentivize the remaining high income givers and corporations.
Universal Deduction for Donations Up to $300
For the over 9 out of 10 people who no longer itemize their charitable giving, the CARES Act will allow these individual taxpayers to deduct donations to charity of up to $300 on their 2020 federal tax return, even though they take the standard deduction. Married-filing-jointly taxpayers do not get a bump to $600, however. $300 is the maximum above-the-line deduction per return.
Raising the Charitable Giving Deduction Cap
For those donors who are still able to itemize their deductions, and therefore directly write off gifts to charity, the current deduction cap is 60% of adjusted gross income*. Corporations are able to deduct charitable donations up to 10% of taxable income.
The CARES Act lifts these caps to 100% for individuals and joint filers, while corporations will see their cap lifted to 25% for 2020. These are truly substantial changes to the tax treatment of donations. For individuals, it could theoretically mean zero taxable income if someone gives big.
For example, if John Taxpayer has an AGI of $175,000, he would normally be able deduct up to $105,000 for gifts to charity. With the temporary changes in the CARES Act, John could now deduct up to his full AGI of $175,000 if he gives that much to charity in 2020. The math works the same way for corporations.
An interesting side note is that the deductibility cap for donations to Donor Advised Funds wasn’t included, even though they technically qualify as public charities.
There has been some criticism of these measures. Some have complained that the limit for standard deduction filers is too low. Others have charged that the primary beneficiaries will be wealthy donors. Such are the outcomes when far-reaching legislation is debated and passed in just a few days.
While some of the criticism has a valid point, I think it is critical that nonprofits not miss this opportunity. The changes involve real money, and have the potential to incentivize donors to open their wallets a bit wider.
My concern is that not enough people know about this. The media just hasn’t focused on this aspect of the CARES Act. For this reason, it is incumbent on nonprofits to inform their donors and followers who are probably not aware that this temporary measure is out their for them.
The window for taking advantage of these changes closes on December 31, 2020.
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This Post Has 33 Comments
As you stated, under the cares act for 2020, an individual can contribute 100% AGI to 501c3 charities. I give to 501c3 charities through the Vanguard Charitable Fund (VCF), is the money I give to VCF in 2020, also 100% of my AGI? Thank you.
Unfortunately, no. The CARES Act specifically excluded gifts to donor advised funds from the deductibility increase.
I thought that under the new rules there was no limit at all on charitable contribs! What’s going on here? If it has now been reduced to 60% of my AGI, then I have to know the exact amount of my AGI by 31 December! That is impossible to do in my experience.
The limit for giving to public charity 501(c)(3) organizations is 100% of AGI for 2020. It will revert to the normal 60% for 2021 tax year.
There can be real benefits to a universal deduction or a universal tax credit. But, as my Tax Policy Center colleague Gene Steuerle and others suggest, the best designs would target benefits to those who give more than they otherwise would, or at least more than a minimum amount of their income, say 1 or 2 percent. The worst designs set a very low cap on the maximum deduction and provide no incentive to increase giving. The CARES Act’s universal deduction fails on both counts.
So, could the ‘big donor’ donate ‘real estate’ and write off the value 100%?
ie “John Taxpayer has an AGI of $175,000, he would normally be able deduct up to $105,000 for gifts to charity. With the temporary changes in the CARES Act, John could now deduct up to his full AGI of $175,000 if he gives that much to charity in 2020.”
Could that $175k be the value of the donated real estate (assuming for this question the actual value is $175k)?
Sorry for the response delay, Kriss. Yes, in general, gifts of property count the same way as cash. Keep in mind that the deductible value of a land gift is more a complicated calculation than just the fair market value. Check out IRS Publication 561 for how to calculate that: https://www.irs.gov/publications/p561
DOes the $300 figure mean ONLY Cash or merchandise donated to Goodwill and Salvation Army.
They give us a sheet to fill out that shows dollar figures.
Could we include item donations of $200 and $100 in cash to equal the $300?
In-kind gifts should count.
Thank you for the excellent summary. The key point is ‘cash’ gifts. I’ve read other articles where mutual funds (that have experienced capital gains) or other stocks, funds, etc. are not eligible. Would you please confirm or refute?
Correct…the new limits do not apply to gifts of appreciated stock.
Is a married couple subject to a maximum of $300 for the above-line deduction? I heard there was concern that the $300 is per tax return, not per individual.
If filing a joint married return, the max is $600 ($300 per taxpayer).
The Joint Committee on Taxation put in a footnote on page 22 of document JCX-12R-20, https://www.jct.gov/publications.html?func=startdown&id=5256, clarifying that the deduction is $300 for either individual filers or for married couples filing jointly.
Does the Act make a distinction between cash and in-kind contributions?
Not that I’m aware of. It should cover both, best I can tell.
So I can give up to 60% of AGI to a DAF and then another 40% directly to the charity?
If I’m understanding the question correctly, then yes. For 2019 only, you can give to public charities, including DAFs, up to 100% of AGI tax-deductibly.
I think you meant for 2020 only. In 2019 we could only get 60% of AGI tax deduction for giving to charities.
Yes, correct, Gene.
Do all nonprofits benefit from this or does they need to address health and human services? Do donations of up to $300 to an environmental 401(c)3 nonprofit also qualify?
I think you mean environmental 501(c)(3), not 401. If so, then yes. The $300 donation deductibility for non-itemizers isn’t limited by organizational purpose.
Is it the first $300 and only the first? Could a person donate $300 multiple times, each time to a different charity?
It’s $300 total, not per organization.
is it also 100% AGI deduction for Private Family Foundations too?
It does not, no. Donations to most private foundations and donor advised funds remain at 30% and 60% respectively.
Did you mean to say ‘2020’ (not 2019) in this statement: ‘’With the temporary changes in the CARES Act, John could now deduct up to his full AGI of $175,000 if he gives that much to charity in 2019.“
Is there a summary paragraph or two that non profits can include in their letters, newsletters?
That’s something you’ll have to come up with that matches your story with your donors. For inspiration, however, you may want to do a search on “CARES Act charitable giving”. Just that search phrase alone turns up numerous charity websites that are sharing this message. Good luck with it!
Sweet deal! I bet non profits are taking a hit as so many are out if work. This will help a lot of people.
If the CARES act passed in March, 2020, how is it possible that “The window for taking advantage of these changes closed on December 31”
Did you mean to say that it WILL close on Dec. 31? Would that be 2020 or 2021?
Great catch…now fixed! Even after proofing, that one got missed. It should read “closes” December 31, 2020.
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