Many charitable organizations are now experiencing a decline in giving as the U.S. finds itself grappling with the COVID health crisis. In response, Congress included a provision in the Coronavirus Aid, Relief, and Economic Security (CARES) Act, P.L. 116-136, intended to provide some relief for charitable organizations. Section 2204 of the CARES Act permits eligible individuals who do not itemize deductions to deduct $300 of qualified charitable contributions as an “above-the-line” deduction, i.e., as an adjustment in determining adjusted gross income (AGI), for tax years beginning in 2020.
QUALIFYING FOR THE DEDUCTION
For tax years beginning in 2020, eligible individuals may deduct up to $300 in qualified charitable contributions made to qualified charitable organizations. Any amount that exceeds the $300 limit may not be carried forward to future tax years or claimed as an itemized deduction. Moreover, charitable contribution itemized deduction carryforwards arising in tax years beginning before 2020 may not be claimed as an above-the-line deduction.
An individual eligible to claim the deduction is any individual who does not elect to itemize deductions for 2020. The $300 limit per filing unit applies regardless of filing status.
QUALIFIED CHARITABLE CONTRIBUTION
A qualified charitable contribution must be made in “cash, check, electronic fund transfer, payroll deduction, etc.” Contributions of noncash property are not allowed as an above-the-line deduction. However, these contributions are still available for individuals who itemize their deductions. No part of a gift that a donor makes in consideration for goods or services received is a contribution for this purpose. For any cash contribution over $250, the taxpayer must keep a “contemporaneous written acknowledgment” of the donation.
However, a couple of issues might arise for taxpayers claiming the $300 above-the-line deduction. First, low-income taxpayers whose AGI does not exceed the standard deduction will largely fail to realize the deduction’s intended benefit. Even if these individuals do have any taxable income before credits, nonrefundable credits (e.g., the child tax credit, child and dependent care credit, etc.) may reduce their taxable income — and, in turn, their tax liability — to zero.
The second issue might arise when a married individual filing a separate return whose spouse itemizes deductions is not eligible for the standard deduction (or has a zero standard deduction), raising the question of whether such an individual may claim the above-the-line charitable deduction(Sec. 63(c)(6)(A)). Assuming such an individual does not also itemize deductions, an above-the-line charitable deduction would seem to be available, since ineligibility for a full standard deduction is not, per se, an election to itemize (Sec. 63(e)(1)). But some IRS guidance on this point would be welcome.
Source: John McKinley, CPA, CGMA, J.D., LL.M., is a professor of the practice of accounting and taxation at Cornell University in Ithaca, N.Y.; Luke Richardson, CPA, M.Acc., is an instructor in accounting and taxation at the University of South Florida in Tampa, Fla.; and Jonas Lee, MPS, is a recent graduate in accounting from Cornell University.