07 April 2020

Impact of CARES ACT for Charitable Giving During COVID-19 Pandemic

***Information and guidance in client updates was up to date at time of publication. During the pandemic, information and guidance has been changing rapidly. If you have any questions about the information contained in a client update, please contact the author(s) or your Miller Johnson attorney.***

The Coronavirus Aid, Relief, and Economic Security (CARES) Act signed into law by the President on March 27, 2020 includes provisions of critical importance for charities. The National Council of Nonprofits reports that our nation has over 1.3 million nonprofits.  More than half of nonprofits have just one month of cash reserves.  With the understanding that charitable giving may suffer during this period when assistance from charitable organizations is most needed, the Act includes provisions to encourage charitable giving as our nation responds to this unprecedented challenge.

New Above the Line Charitable Deduction

Taxpayers who do not itemize deductions are able to deduct up to $300 for certain charitable gifts in 2020.  The gift must be made in cash to a public charity.  Married couples are able to deduct up to $600 for cash gifts.  This above-the-line adjustment to income will reduce the donor-taxpayer’s adjusted gross income (AGI), which in turn reduces taxable income.

The deduction is not available for gifts to donor advised funds (DAFs), supporting organizations, or private foundations.  The deduction is only available for cash gifts made in 2020 and is not available for cash deductions carried forward from prior years.

Increased Percentage Limitation for Cash Gifts

Prior to the adoption of the CARES Act, donors making cash gifts to public charities were able to deduct up to 60 percent of adjusted gross income (AGI).  The CARES Act eliminates the Code § 170 percentage limitation on most cash gifts to public charities.  The 100 percent of AGI limit does not apply to carry-over deductions from prior years.  If a contribution is in excess of a donor’s AGI, the excess may be carried over to subsequent years, but will be subject to the percentage limitations in place in the carryover years.  The 100 percent AGI limit is not available for gifts to donor advised funds, private foundations, or supporting organizations.

Increased Percentage Limitation on Cash Gifts from Corporations

Under prior law, charitable contributions made by corporations could not exceed 10 percent of taxable income.  The limit on cash contributions to public charities from corporations for 2020 purposes has been increased from 10 percent to 25 percent of taxable income.  This increased limitation does not apply to private foundations, supporting organizations, or donor advised funds (DAFs).

Suspension of RMD Requirements and Impact on Charitable Giving

The new law suspends required minimum distributions (RMD) from most qualified retirement plans, including IRAs.  This may reduce the incentive for taxpayers to make qualified charitable distributions (QCDs) from their IRAs in 2020.  Nonetheless, the IRA charitable rollover remains available in 2020 for taxpayers who choose to make qualified charitable distributions (QCDs).

If you have any questions related to this client update or your specific charitable giving questions as you explore ways to help others during these challenging times, please contact the author or another member of the Estate Planning group.