Locke Lord QuickStudy: CARES Act Guide: Overview of Expanded Charitable Contribution Limits

On March 27, 2020, President Trump signed the Coronavirus Aid, Relief, and Economic Security Act or the “CARES Act”, into law. The CARES Act will provide significant financial relief to individuals and small businesses, especially those businesses in certain sectors of the U.S. economy that have been hit hardest by the COVID-19 pandemic, by providing $2 trillion in stimulus to the U.S. economy. 

A significant portion of the CARES Act focuses on supporting American workers, families and businesses through a combination of unemployment provisions, tax rebates, retirement plan changes and modifications to the Internal Revenue Code of 1986, as amended (the “Code”).  This QuickStudy focuses on the expanded charitable contribution limits included in the CARES Act.  Please note that Locke Lord has separate Quick Studies that review the CARES Act’s provisions related to Business Tax Changes, Employee Benefits Changes, Executive Compensation Limits, and Expanded Unemployment Benefits. 

For more CARES Act information please see: Saving Our Small Businesses: CARES Act Expands Economic Injury Disaster Loan Program to Provide Additional Financial Relief to Small Businesses, Saving Our Small Businesses: Lender Considerations for Participating in the New Forgivable Paycheck Protection Program Loans to Small Businesses, Saving Our Small Businesses: Congress Reaches Agreement on New Forgivable Paycheck Protection Loans to Small Businesses, Saving Our Small Businesses: “Phase Three” Economic Recovery Proposal Includes New Forgivable SBA Loans for Small Businesses Impacted and Saving Our Small Businesses: SBA Disaster Assistance Loans for Small Businesses Impacted by COVID-19. 

For 2020 and future tax years, there is a new opportunity for individual taxpayers who use the standard deduction to take an above-the-line deduction for charitable contributions, up to an annual maximum of $300. The new deduction opportunity applies to eligible individual taxpayers who make “qualified charitable contributions” during the tax year.

Additionally, the CARES Act permits individual and corporate taxpayers to take deductions for certain “qualified contributions” made during the 2020 calendar year above the generally applicable deduction limits. “Qualified contribution” means a charitable contribution made in cash during the 2020 calendar year, with respect to which the taxpayer has elected to utilize the increased deduction limit for the 2020 tax year. For partnerships and S-corporations, each partner and shareholder may make a separate election to utilize the increased deduction limit for 2020.

Qualified contributions are allowed as a deduction to the extent that such contributions do not exceed 100% of an individual taxpayer’s adjusted gross income for the year (computed without regard to any net operating loss carryback), or 25% of a corporate taxpayer’s taxable income (within the meaning of Code Section 170(b)(2), minus any other deductible charitable contributions for the year. Individual and corporate taxpayers may carry forward excess qualified contributions under the generally-applicable deduction carry forward rules.

Contributions to private foundations, Code Section 509(a)(3) supporting organizations or donor advised funds or donations made in a prior year that are carried forward to 2020 for deduction purposes are not subject to the above-described increased deduction opportunities.

The CARES Act also provides that any contribution of food inventory from a taxpayer’s business during 2020 to which Section 170(e)(3)(C) applies is subject to an increased deduction limit of 25% of the taxpayer’s aggregate net income (or taxable income for C-corporation taxpayers), which is increased from the generally applicable limit of 15%.

Visit our COVID-19 Resource Center often for up-to-date information to help you stay informed of the legal issues related to COVID-19.