The CARES Act, signed into law on March 27, 2020 by President Trump following the approval of the Act by the Senate on March 25 and the House of Representatives on March 27, provides for temporary increases in deduction limits in order to encourage immediate charitable giving.
The deduction limits for cash gifts to "public charities" within the 2020 taxable year are expanded for both individuals and corporations. The Act does not require that contributions be devoted to relief of the adverse effects of the Coronavirus.
Individuals who do not itemize deductions will be allowed up to a $300 charitable deduction for gifts of cash to public charities during 2020. Presumably, non-itemizing individuals filing a joint return will be allowed a $600 combined deduction.
Individuals who itemize deductions can elect to ignore the normal adjusted gross income ("AGI") limits for gifts of cash made to public charities in the calendar year 2020. This essentially means that a 100% of AGI limitation will apply instead of the usual 50% or 60% limitation for such cash contributions. Gifts of cash in excess of 100% would be eligible for the normal 5 year carryforward rule for 2021 and later years subject to the usual 50%/60% limits. Carryforwards of cash contributions from years prior to 2020 cannot be counted as contributions subject to the 100% limit in 2020.
In the case of gifts from a pass-through entity such as a partnership or S Corp, the election to disregard the normal AGI limits for cash contributions will be made at the individual shareholder or partner level.
"C" corporations will be able to deduct up to 25% (rather than the normal 10%) percent of their net income for cash distributions made to public charities within their taxable years beginning in 2020. The carryover rules will generally apply in the same manner as carryovers by individual taxpayers.
The increased charitable deduction limitations described above for individuals and corporations only apply to cash gifts to public charities. For this purpose, donor-advised funds (DAFs) and supporting organizations do not qualify as public charities. While most foundations will not qualify as public charities, operating foundations, pooled common funds and pass-through foundations do qualify as public charities for this purpose.
For corporations, the special limitation for gifts of food inventory is increased from 15% to 25% for the 2020 year.
If you would like to discuss how you could put this information to use for your charitable planning, please consult your Withers Bergman attorney.