CARES Act: The effect on charitable giving
As the effects of COVID-19 continue to reverberate across the globe, charities continue to need your help. The Coronavirus Aid, Relief, and Economic Security Act includes several key provisions that can impact charitable giving.
Increased Adjusted Gross Income Deduction Limit for 2020 and extended for 2021
Under the CARES Act, donors who itemize their deductions may deduct cash contributions to public charities up to 100% of their Adjusted Gross Income in 2020 and 2021. This represents an increase from the 60% AGI limit that ordinarily applies to cash gifts made to public charities. Excess contributions can be carried forward for up to five additional years.
There are some restrictions. For example, this increased 100% AGI limit does not apply to charitable contributions carried forward from a prior tax year or cash gifts made to:
- Private non-operating foundations
- Donor advised funds
- Supporting organizations
- Split-interest giving vehicles (i.e., charitable remainder trusts, charitable lead trusts, pooled income funds)
The CARES Act does not change the AGI limit for charitable gifts of non-cash assets or for gifts to donor advised funds. If you wish to make charitable gifts exceeding the respective AGI limits, you might consider “stacking” charitable gifts of cash and non-cash assets.
To do this, you can give long-term, appreciated securities (including gifts to their donor advised funds) in an amount up to 30% of your AGI and also make cash contributions to other qualified public charities equal to the difference, up to 100% of your AGI.
This strategy allows you to give directly to charities now, while also contributing assets to your donor advised funds, thereby empowering you to give strategically over time.
As an example, a donor can:
- Contribute long-term, appreciated securities to a donor advised fund in an amount up to 30% of their AGI
- Contribute cash to their donor advised fund up to another 20% of their AGI1
- Then contribute cash equal to another 50% of their AGI to one or more public charities (including FFTC Community Impact Funds, Scholarship Funds or Designated Funds)
Please note: Appreciated, non-publicly traded assets make tax-efficient gifts, but are difficult for small charities to accept. Since 2012 FFTC has accepted more than $240 million in these and other illiquid gifts, transferring proceeds to public charities or charitable funds.
Modified and extended charitable Deduction for Non-Itemizers
Taxpayers who did not itemize their deductions were able to claim an above-the-line deduction up to $300 for cash gifts made to public charities in 2020. This deduction was extended through 2021 and, for 2021, the deduction is increased to $600 for married couples filing joint returns. This deduction is not available for cash gifts to private non-operating foundations, donor advised funds, supporting organizations or split-interest vehicles.
Our team would be happy to discuss these changes and how they may affect your charitable planning. Contact Kindl Detar at firstname.lastname@example.org or 704.973.4581 for more information.
FFTC does not provide tax or legal advice. The information contained herein is for educational purposes and is not intended to be a substitute for individualized tax, legal, or investment advice.
1 In the case of the stacking example above, there is some question whether donors can contribute cash equal to an additional 20% or 30% of their AGI to a DAF. The 2017 Tax Cuts and Jobs Act arguably included a drafting error that has not, as of yet, been corrected. Because of this error, the deduction for donors who “stack” their charitable gifts may be limited, in the case of cash gifts to their DAF, to an additional 20% of AGI. It is worth noting that this is commonly understood as an error and contrary to congressional intent. We also understand that some accountants think there is a reasonable position consistent with Congressional intent whereby a donor could claim a deduction for additional cash gifts to a DAF up to 30% of the donor’s AGI. In all cases, you should consult with your tax or legal advisor to determine the specific implications of stacking.