Nonprofits Take on the COVID-19 Crisis: Enhanced Deductibility Benefit for Large Cash Gifts to Charity and for Non-Itemizers

Patterson Belknap Webb & Tyler LLP

Patterson Belknap Webb & Tyler LLP

The newly enacted Coronavirus Aid, Relief, and Economic Security Act (commonly known as the “CARES Act”) includes provisions designed to encourage charitable contributions of cash, by allowing individual donors to charities to deduct up to 100% of their 2020 adjusted gross income (“AGI”), over and above the usual cap of 60% (or 50% if charitable contributions are made through a combination of cash and other assets).  For corporate donors, the deduction cap is raised to 25%, over and above the usual cap of 10%. Unused deductions allowable under the CARES Act may be carried forward into future tax years, subject to the traditional deductibility limitations, which will be restored in 2021.

These expanded deduction limitations are available only to itemizing taxpayers and only for gifts of cash made during 2020.  And they are not available for gifts to private foundations (other than pass-through foundations and private operating foundations), donor-advised funds (DAFs), or supporting organizations.

Because of the intricate rules governing the income tax charitable deduction, as well as the allowability of other deductions and the impact of the alternative minimum tax, donors should review carefully with their professional advisors any plans they may have to maximize their charitable giving in 2020.

The law also includes a benefit for non-itemizing taxpayers:  they are allowed a $300 “above-the-line” deduction for cash gifts to qualifying charities.  Although the CARES Act could be clearer, it appears – unless and until the IRS says otherwise – that this benefit for non-itemizers is limited to cash gifts that they make to qualifying charities in 2020.

Even though the CARES Act provides no new benefit for gifts to private foundations (other than pass-through foundations and private operating foundations), DAFs and supporting organizations or for gifts other than cash, the charitable deduction benefits that have traditionally been available for all charitable gifts will continue to apply at the customary levels.  Therefore, an itemizing donor wishing to make gifts to some combination of private non-operating, non-pass-through foundations, DAFs and/or supporting organizations, or charitable gifts of securities, real property, and/or tangible personal property, will still benefit as he or she always did and, in addition, he or she may be able to obtain additional tax benefits by making 2020 cash gifts that qualify for enhanced deductibility under the CARES Act.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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