How Did the CARES Act Change Charitable Contribution Deductions?

SC&H’s Key Takeaways

  • A new $300 above-the-line charitable deduction is available beginning in 2020 for individual taxpayers who take the standard deduction.
  • The adjusted gross income limitation for individual cash charitable contributions made during 2020 is eliminated.
  • The taxable income limitation for corporate cash charitable contributions made during 2020 is increased to 25%.
  • During 2020, contributions of food inventory are limited to 25% of taxable income, rather than 15%.

On March 27, 2020, President Trump signed the Coronavirus Aid, Relief, and Economic Security Act (CARES Act, H.R. 748).  Included in this act were several provisions that enhance the benefit of charitable giving in 2020 to individuals and corporate taxpayers.

$300 Above-The-Line Charitable Deduction

Under the old rules, charitable contributions only benefited those that itemized their deductions on their personal income tax return.  Generally, individual taxpayers would only itemize if their cumulative itemized deductions exceed the annual standard deduction (in 2020, the standard deduction for a single taxpayer is $12,400 and taxpayers filing as married filing jointly is $24,800).

The CARES Act adds a new above-the-line deduction, available in 2020 and future years, for up to $300 of cash contributions made to a qualified charitable organization.  This deduction is in additional to and does not take away from the standard deduction.  Contributions to supporting organizations under IRC 509(a)(3) and to donor advised funds do not qualify under this new deduction.  Taxpayers who itemize cannot take advantage of this new deduction, as their charitable contributions will be reported elsewhere.

Limitations on Individual Cash Charitable Contributions During 2020

Additionally, under IRC Section 170(b)(1), individual cash contributions to public charities (such as churches, educational organizations, hospitals, and medical research organizations) are limited to 60% of the individual’s annual adjusted gross income.  Any excess amount is carried forward and can be utilized over the next five years.

For tax year 2020, the CARES Acts allows qualified cash contributions made by individuals to be deductible up to 100% their adjusted gross income.  Qualified contributions are allowed as a deduction only to the extent that the aggregate of those contributions does not exceed the excess of the individual’s adjusted gross income over the amount of all other charitable contributions allowed as deductions for the year.  Again, any excess amount is carried forward and can be utilized over the next five years.

Additionally, the taxpayer must elect to apply this provision with respect to the contribution.  In the case of a partnership or S corporations, the election is made separately by each partner or shareholder.

Limitations on Corporate Cash Charitable Contributions During 2020

Similar to individual taxpayers, IRC Section 170 (b)(2) limits corporate cash charitable contributions to 10% of taxable income and any excess amount is added to the carryforward and can be utilized over the succeeding five years.

The CARES Act modifies this limitation and allows a corporate taxpayer who makes cash contributions to public charitable organizations in 2020 to take a deduction up to 25% of taxable income.

Increase in Limits on Contributions of Food Inventory

In prior years, a donation of food inventory to a charitable organization used to care for the ill, the needy, or infants was deductible in an amount up to basis plus half the gain that would be realized on the sale of the food (not to exceed twice the basis).  In the case of C corporations, the deduction cannot exceed 15% of the corporation’s income.  In the case of a taxpayer other than a C corporation, the deduction cannot exceed 15% of aggregate net income of the taxpayer for that tax year from all trades or businesses from which those contributions were made.

The CARES Act allows any charitable contribution of food during 2020 to be limited to 25% rather than 15% of taxable income.

Please contact the SC&H Tax Team for further advice or questions.