The Coronavirus Aid, Relief and Economic Security (CARES) Act included a provision designed to encourage the nation’s wealthiest taxpayers to increase their charitable giving during the COVID-19 pandemic. The Tax Cuts and Jobs Act (TCJA) had capped the deduction for cash contributions to public charities at 60% of a taxpayer’s adjusted gross income (AGI), but the CARES Act raised that limit to public charities (other than donor-advised funds) to 100% for 2020. For many philanthropically inclined individuals, the change provides an incentive to maximize qualifying charitable giving during this crisis year. However, the calculation of the deductible amounts can be quite complicated, and careful planning will be needed to get the full tax benefit of these extraordinary donations.
CARES Act eliminates “see-saw” effect for 2020
The limit for cash donations to qualifying public charities, whether it’s the TCJA’s 60% or the CARES Act’s 100% limit for 2020, is part of a broader landscape of charitable contribution limitation rules that impose different deductibility caps based on the type of asset donated and the type of recipient charity. Gifts of qualifying appreciated stock to private foundations might be deducted only up to 20% of AGI, while gifts of cash to private foundations might be deductible up to 30% of AGI. Gifts of certain appreciated assets to public charities are also deductible up to 30% of AGI. Prior to the CARES Act, a cash deduction to a public charity might qualify for the 60% of AGI limitation, but it might lower the limit of deductibility in another class of donated assets and result in a net-zero effect on the overall charitable contribution deduction for that year. (Note that charitable contributions in excess of the relevant AGI limitation may be carried forward for up to five years in most cases.)
On top of increasing the cap on deductibility, the CARES Act also eliminates this see-saw effect for 2020. The deductibility of all other charitable contributions besides 2020 cash donations to qualifying public charities is calculated on its own, and then the cash contributions to public charities are added to that subtotal at the end of the process, subject to the 100% of AGI limitation.
Maximizing the impact of your philanthropy
We often serve individuals and families who engage in philanthropy at a level that pushes up against deductibility limits based on AGI. While nobody looks to turn down a legitimate deduction, time and again, we see philanthropists who are willing to donate amounts necessary to help an organization achieve its goals, even if it means they may forego a deduction for the full amount of their gift. The key thing to remember about this additional deductibility in 2020 is that the tax savings can provide charitably-inclined taxpayers with additional resources to support their other financial goals.
To learn more about how this change may affect your charitable giving plans in 2020 and beyond, please contact your Plante Moran advisor.
