Among the many provisions in the 880-page Coronavirus Relief and Economic Security (CARES) Act are changes to rules for charitable deductions that can help direct more funds to nonprofits and boost the tax benefits for donors.
They are intended to get more money to nonprofits whose services are in extremely high demand as their revenues are plummeting.
“Charities need funds right now. not just for COVID-19 purposes but because their fundraising galas, walkathons, etc., are being canceled and because their donor bases are under financial stress,” says Tony Oommen, vice president and charitable planning consultant at Fidelity Charitable.
Here are some of the highlights of the CARES Act changes for charitable donations.
1. $300 Above-the-Line Charitable Deduction
Taxpayers who take the standard deduction can now claim a $300 above-the-line deduction for charitable contributions.
“This is huge because since the 2017 tax law giving has trended downward, particularly in that band of people who were once itemizing and not are taking the standard deduction,” says Rich Cohen, the chief spokesman and chief operating officer of the National Council of Nonprofits. (The tax overhaul doubled the standard deduction.)
The deduction is currently only good for the 2020 tax year, but Cohen’s organization, which represents more than 25,000 nonprofits, would like to see it extended retroactively to 2019 since that tax filing deadline has been extended for three months, and through 2021 because, says Cohen, “the recovery won’t happen in the next six months. It will take a long time.”
2. Expanded Tax Deduction Limit for Individuals
In more normal times, the deduction for charitable donations is capped at 60% of adjusted gross income (AGI). Under the CARES Act, it is capped at 100% of AGI for 2020, so long as the additional contributions are made directly to a charitable organization.
Donor-advised funds are excluded from the new limit, but donors can still give 60% of AGI to a DAF and another 40% of AGI directly to a charitable organization, or vice versa.