CARES Act – Information for Donors

The 2020 CARES Act, passed in response to the coronavirus, contains some new tax allowances that donors should be aware of:

  1. A new allowance for non-itemizing taxpayers (i.e. those who take the “standard deduction”) to claim a $300 “above-the-line” deduction for donations to 501(c)(3) organizations; and
  2. For individuals and corporations that do itemize, significant increases in the percentage of income they can deduct based on charitable contributions (up to 100 percent and 25 percent, respectively).

Background: Deductible Donations to 501(c)(3) Organizations Prior to CARES

Under the tax code, donors to 501(c)(3) organizations can deduct the value of their contributions to reduce their taxable income. Specifically, individual donors have been allowed to deduct contributions worth up to 60 percent of their Adjusted Gross Income (AGI) from their taxable income; Corporations were also allowed to deduct up to 10 percent of their income from charitable contributions.

Importantly, these deductions have only been available to donors who “itemize” their deductions on Schedule A of their tax return.

Many taxpayers choose to take the “standard deduction” instead of itemizing, meaning that they cannot claim a specific tax benefit for their charitable contributions.

New Deductibility Incentives Under CARES

A. “Above-the-Line” Deduction for Non-Itemizing Taxpayers

The CARES Act created a new universal $300 deduction for cash contributions to 501(c)(3) nonprofits in 2020. As a so-called “above-the-line” deduction—the same category as deductions for educator expenses, IRA contributions, student loan interest payments, and HSA contributions—it will be available to donors who take the standard deduction instead of itemizing their deductions on Schedule A of their tax return. The deduction will be claimed on personal income tax filings in 2021. The new deduction cannot be claimed for contributions to certain nonprofit-supporting organizations, donor advised funds, or certain nonprofits that create and manage donor advised funds.

B. Increased Deduction Limits for Itemizing Taxpayers

For taxpayers that do itemize, the CARES Act increases the individual deduction limit for donations to 501(c)(3) public charities. For individuals, the deduction limit has been raised from 60 percent to 100 percent of AGI; for corporations, the limit has been raised from 10 percent to 25 percent of taxable income. Existing deduction rollover rules also apply, meaning that donors who contribute more than the income limit can deduct the remaining balance in subsequent years.

The new deduction limits are only available for donations to public charities, meaning that donations to 501(c)(3) private foundations are not affected. Contributions to donor advised funds are also not included in the expanded limits.

SOURCE: DC Bar Pro Bono Center