CARES Act offers new charitable giving deduction in 2020

As part of the CARES Act, the largest economic stimulus package U.S. history that was signed into March 27, the federal tax code was amended, allowing for additional deductions for charitable giving.

Beginning with the 2020 tax year, the Internal Revenue Service (IRS) will allow “partial above-the-line deduction for charitable contributions,” according to the text of the act. Above-the-line deductions are deductions subtracted from gross income to figure adjusted gross income (AGI). Below-the-line deductions are deductions made after AGI is figured – either itemized deductions or a standard deduction.

The new rule allows these taxpayers who utilize a standard deduction (below the AGI line) to deduct up to $300 of eligible charitable contributions from their gross income (above the AGI line), lowering their AGI amount.

For example, this means an individual taxpayer may deduct up to $300 in tithes to his or her local church while still taking the IRS’ standard deduction. Joint filers can deduct up to $600. The deductible gifts must be made in cash, not in food or donations, and a few other restrictions are at play.

Nonprofits have asked for such a deduction since the Tax Cuts and Jobs Act went into effect in 2018. Prior to that law, taxpayers who itemized on their taxes were able to take deductions for charitable donations to churches and nonprofits. But the Tax Cuts and Jobs Act roughly doubled the standard deduction, resulting in some 90% of taxpayers taking the standard deduction. That led to a slight decline in charitable giving, according to Giving USA’s 2018 report.

Additionally, exclusively for the 2020 tax year, the new law allows taxpayers to deduct eligible charitable contributions up to 100 percent of their AGI – up from the 60 percent, which has been the limit since 2017.

EDITOR’S NOTE: As with all tax-related law, the Cares Act is complex. Donors should consult with their professional tax advisers about their personal financial situation. The information in this article is not intended as tax advice.