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The Coronavirus Aid, Relief and Economic Security (CARES) Act signed into law on March 27, 2020 made three modifications to charitable deductions for taxpayers making charitable contributions in 2020. They benefit (i) those who take the standard deduction; (ii) those who itemize deductions; and (iii) corporations making charitable contributions.
Individuals who take the standard deduction.
Individuals who take the standard deduction in 2020 ($12,400 for single filers and $24,800 for married filing jointly) can deduct up to $300 per individual (or $600 for married filing jointly) of cash charitable gifts made in 2020. This “above the line deduction” is in addition to the standard deduction. There is a caveat however. The contributions have to be in cash, made in 2020 (no carryovers from prior years), and must be made to a public charity other than supporting organizations, donor advised funds and private foundations.
Individuals who itemize their deductions.
Individuals who itemize their deductions in 2020 are incentivized to make larger cash contributions to public charities during the year. Since 2018 the limitation for deductibility of cash gifts to public charities has been 60% of an individuals adjusted gross income. CARES increased the 2020 limitation to 100% of an individuals adjusted gross income. As with the $300 deduction above, the cash gift must be made in 2020 (no carryovers from prior years), and the gift must be made to a public charity other than supporting organizations, donor advised funds and private foundations. Amounts in excess of the 2020 cash limitations may be carried forward for five years.
Individual planning opportunities
- With the recent market volatility, charitable motivated taxpayers may have stock which, if sold, would generate a capital loss. While a taxpayer can’t contribute the “loss stock” to a public charity and receive the benefit of the increased deduction, she could sell the stock, realize the capital loss (which could have a significant tax benefit) and then contribute the cash proceeds from the sale to a public charity and capture the increased cash deductibility benefit for 2020.
- Care should be given to managing charitable contributions when a taxpayer is at or near the limitation amounts so as to not have charitable carryforwards expire.
Impact to corporations
Prior law provided corporations the ability to deduct charitable contributions up to 10% of taxable income. The CARES act increased the limit to 25% of taxable income for cash contributions to public charities other than supporting organizations, donor advised funds and private foundations.
In addition to the above strategies, near historic low interest rates have made split charitable gifts much more attractive for those taxpayers seeking to make larger legacy gifts. To discuss these new rules, or what course of action might make sense for your long-term financial and charitable goals, please do not hesitate to contact your SVB Private relationship manager or Jason M. Cain.