CARES Act Expands Tax Deductions for Charitable Giving

[The changes made by the CARES Act, described below, are temporary and have not yet been extended into 2022 or beyond.]

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 made to WHHA in 2021. 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 was extended through 2021, and for contributions made during the calendar year of 2021, joint filers were able to claim up to $600 "above the line." This benefit applied only to current cash contributions, not to carryforwards from prior years. Note: none of these provisions has yet been extended to 2022.

"Unlimited" Deduction for Cash Gifts

If you did itemize, you could 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 Decembe 2020, this benefit was extended through 2021, but again, it has not yet been extended through 2022.

If you also made noncash gifts in 2020 or 2021, which are subject to lower AGI limitations, or if you had carryforwards from noncash gifts made in prior years, you could still take advantage of the temporary "unlimited" deduction for cash gifts made in those years, without losing a carryforward year for those items. Excess cash gifts would simply be carried forward to subsequent years.

The limitation on deductions for cash contributions by corporations was also temporarily increased, from 10 percent of taxable income to 25 percent, and the limitation for contributions of food inventory was increased from 15 percent to 25 percent. Both these changes were also extended through 2021 as part of the December 2020 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 was not extended into 2021. If you were 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 through 2021, you could take distributions from your IRA and make deductible gifts in 2021, with no AGI limitation.

Please contact your financial advisor for further details.

The CARES Act is not rocket science, but it is a 335-page bill, and we are not qualified to give legal or financial advice. Contact your professional advisors if you are considering a sizeable gift.