CARES Act Creates a $300 Charitable Contribution Deduction for the Standard Deduction

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On Friday, March 27, 2020, President Trump signed H.R.748 – Coronavirus Aid, Relief, and Economic Security (CARES) Act into law. The act contains in it many temporary provisions and new tax law changes to try and help the economy during this 2020 coronavirus pandemic.

Among the permanent measures, Congress enabled those who are taking the standard deduction to deduct $300 of charitable giving if they do not itemize. This provision is called a “qualified charitable contribution.”

The act states that it applies to “taxable years beginning in 2020” and that “The amendments made by this section shall apply to taxable years beginning after December 31, 2019.” There is no indication of an expiration date.

The act requires that qualified charitable contributions be made in cash directly to the charity to qualify. This means that, sadly, you cannot give appreciated stock nor can you donate to a donor advised fund.

Prior to this law, Qualified Charitable Distributions (QCDs) or gift clumping were the main way that the charitably inclined could reduce their taxes while still usually taking the standard deduction. However, QCDs are limited to only those who are already older than 70 1/2 and gift clumping requires you to donate large amounts to charity.

These new qualified charitable contributions enable those who are younger to take advantage of a small amount of AGI reduction due to their charitable giving.

It also enables those who want to give away more money than just QCDs of their required minimum distributions to further reduce their AGI by a small amount.

Although a small change, small changes can have large effects over time. This will save some tax payers a little bit. For example, 22% of $300 is $66 of savings.

For those who are interested, here is the full relevant text of the final bill:

SEC. 2204. Allowance of partial above the line deduction for charitable contributions.

(a) In general.—Section 62(a) of the Internal Revenue Code of 1986 is amended by inserting after paragraph (21) the following new paragraph:

(22) CHARITABLE CONTRIBUTIONS.—In the case of taxable years beginning in 2020, the amount (not to exceed $300) of qualified charitable contributions made by an eligible individual during the taxable year.

(b) Definitions.—Section 62 of such Code is amended by adding at the end the following new subsection:

(f) Definitions relating to qualified charitable contributions.—For purposes of subsection (a)(22)—

(1) ELIGIBLE INDIVIDUAL.—The term ‘eligible individual’ means any individual who does not elect to itemize deductions.

(2) QUALIFIED CHARITABLE CONTRIBUTIONS.—The term ‘qualified charitable contribution’ means a charitable contribution (as defined in section 170(c))—

(A) which is made in cash,

(B) for which a deduction is allowable under section 170 (determined without regard to subsection (b) thereof), and

(C) which is—

(i) made to an organization described in section 170(b)(1)(A), and

(ii) not—

(I) to an organization described in section 509(a)(3), or

(II) for the establishment of a new, or maintenance of an existing, donor advised fund (as defined in section 4966(d)(2)).

Such term shall not include any amount which is treated as a charitable contribution made in such taxable year by reason of subsection (b)(1)(G)(ii) or (d)(1) of section 170.

(c) Effective date.—The amendments made by this section shall apply to taxable years beginning after December 31, 2019.

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Megan Russell has worked with Marotta Wealth Management most of her life. She loves to find ways to make the complexities of financial planning accessible to everyone. She is the author of over 800 financial articles and is known for her expertise on tax planning.