The Coronavirus Aid Relief and Economic Securities Act, also known as the CARES Act, is the third COVID-19 related bill enacted by Congress being preceded by the Coronavirus Preparedness and Response Supplemental Appropriations Act and the Families First Coronavirus Response Act. The CARES Act includes significant tax relief and charitable giving benefits.
What are the Federal income tax deductions for charitable contributions included in the CARES Act?
The CARES Act makes a new charitable deduction available to individual taxpayers that do not itemize their deductions. This new benefit, also referred to as a universal deduction, allows for a charitable deduction of up to $300 per individual. This is an above-the-line contribution that is deducted from the individual taxpayer’s income prior to the calculation of their adjusted gross income. This is the one charitable giving benefit that will extend beyond the 2020 tax year.
In addition to the new universal deduction, for 2020, the Act provides incentives for both individuals and corporations by increasing the available deductions on qualified charitable contributions to:
- 100% of their adjusted gross income for individual taxpayers who itemize their deductions. Beyond the scope of the CARES Act, the deduction for qualified charitable contributions made by itemizing individual donors is limited to 60% of their adjusted gross income.
- 25% of taxable income for corporations. Up from the 10% limit which is generally applicable for corporations outside of the CARES Act.
What conditions need to be met to qualify for the enhanced tax benefits?
To trigger these new benefits, both individual and corporate taxpayers have to make a qualified charitable contribution. The increased limits are applicable only to cash donations. Contributions of any kind of property, including marketable securities, real assets or otherwise, do not qualify. To qualify, the cash contributions have to be made, with a few exceptions, to a public charity.
Are charitable contributions to a private foundation considered “qualified contributions” under the CARES Act? How about donations to supporting organizations?
There are certain limited types of private foundations that would qualify, but by and large, family foundations, corporate foundations, and private non-operating foundations would not qualify as a recipient. Supporting organizations under code Section 509(a)(3)—charities that carry out their exempt purposes by supporting other exempt organizations, usually other public charities—are also not eligible recipients of these contributions. This is especially important to note within the context of COVID-19 relief work, as many supporting organizations are affiliated with institutions like hospitals and universities.
A “qualified charitable contribution” is a charitable contribution: a) made in cash; b) allowable under IRC §170; c) made to an organization described in IRC §170(b)(1)(A) (i.e. 501(c)(3) and certain other charitable organizations), and not a supporting organization described in IRC §509(a)(3); and d) is not for the establishment of a new, or maintenance of an existing, donor advised fund. In addition, a qualified charitable contribution does not include any amount which is carried over from a prior tax year.
Are the enhanced tax benefits applicable to the charitable contributions made into a donor-advised fund (DAF)?
Contributions to DAFs do not qualify for the enhanced benefits under the CARES Act. However, since the sponsoring organization of a DAF is a 501(c)(3) public charity, the donor can still make a contribution to that charity if it offers other giving vehicles that would qualify under the CARES Act.
Donors partnering with CAF America, can make a restricted gift to benefit a specific organization that is pre-approved and eligible to receive charitable funding through CAF America. Donors also have the option to make a gift to a restricted fund established at CAF America, also known as an area of interest fund. Such gifts are qualified contributions and will trigger the enhanced benefits provided by the CARES Act. See CAF America’s COVID-19 Response page for an up-to-date list of eligible organizations responding to the coronavirus pandemic worldwide.
Are the enhanced benefits restricted to charitable gifts that support COVID-19 related relief efforts?
As long as the requirements discussed above are met, the universal deduction and the increased deduction limits are applicable to charitable gifts going to any cause the donor wants to support. The donation does not have to be related to COVID-19 relief efforts.
source: CAF America