Tax Law Updates

CARES Act Expands Tax Deductions for Charitable Giving

New Giving Opportunity for Non-Itemizers

If you do not itemize deductions, you may nonetheless take an “above-the-line” deduction for up to $300 in cash gifts you make to charity. Joint filers can deduct up to $600.

As first enacted as part of the CARES Act in March 2020, this opportunity applied only to contributions made during 2020, and was limited to $300 even on joint returns. But with the further round of COVID relief enacted in December, it has been extended through 2021, and for contributions made on or after January 1st, joint filers will be able to claim up to $600 “above the line.” This benefit applies only to current cash contributions, not to carryforwards from prior years.

“Unlimited” Deduction for Cash Gifts

If you do itemize, you may deduct up to the entire amount of your adjusted gross income (AGI) for cash gifts you made in 2020, without reference to the 60 percent limitation that would otherwise apply. Again, as part of the further COVID relief measure enacted in December, this benefit has been extended through 2021.

If you also make noncash gifts, which are subject to lower AGI limitations, or if you have carryforwards from noncash gifts made in prior years, you can still take advantage of the temporary “unlimited” deduction for cash gifts, without losing a carryforward year for those items. Excess cash gifts will simply be carried forward to subsequent years.

The limitation on deductions for cash contributions by corporations has also been temporarily increased, from 10 percent of taxable income to 25 percent, and the limitation for contributions of food inventory has been increased from 15 percent to 25 percent. Both these changes were also extended through 2021 as part of the December legislation.

Relief from the Minimum Distribution Requirement

Required minimum distributions (RMDs) from IRAs and other “defined contribution” retirement plans were waived for 2020 only. The waiver has not been extended into 2021. If you are age 72 or older, and would otherwise have been required to begin taking distributions during 2020, this respite was intended to give your retirement portfolio another year to recover from the extreme volatility of the markets during the early months of the COVID-19 crisis.

“Charitable IRA” Rules Unchanged

The minimum age for making a qualified charitable distribution (QCD) from your IRA – the so-called “charitable IRA Rollover” – is still 70½, and the annual limit is still $100,000. The QCD was still available for 2020 even though RMDs were suspended. And with the “unlimited” itemized deduction extended another year, you can take distributions from your IRA and make deductible gifts in 2021, with no AGI limitation.

How to Advise Your Donors

The CARES Act is not rocket science, but it is an 335-page bill, and most charities are not qualified to give legal or financial advice. Suggest donors to contact their professional advisors if they are considering a sizeable gift.

Jonathon Gudema JD

Moderated by
Jonathan Gudema, JD,

Jonathan has over 20 years of experience working with and advising individuals and non-profit organizations on planned gift arrangements and tax-advantaged charitable estate planning options. In addition to being a practicing attorney, he has also played key roles in helping non-profit organizations manage planned giving programs, working with staff, donors and their advisors in cultivating and closing significant planned gifts.