CARES Act Creates Tax Opportunities for Donors in 2020

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) was signed into law to provide economic relief for the U.S. economy. It also created some tax advantages for donors to make gifts during the 2020 tax year.

Individual Income Tax

New charitable deduction for non-itemizers:

Under the CARES Act, you are allowed to claim up to $300 in charitable deductions ($600 per married couple).

This special deduction is taken “above the line,” which means that it reduces your Adjusted Gross Income, resulting in a decreased tax burden.

For those who itemize deductions:

You may deduct up to 100% of your Adjusted Gross Income for gifts of cash in 2020—up from 60% in 2019.

Example: A donor with an AGI of $300,000 could donate $300,000 in cash to Interlochen and receive a federal income tax deduction of $300,000.

This benefit is limited to the 2020 tax year and applies only to gifts to Interlochen or other public charities. It does not apply to gifts to donor-advised funds (DAFs) or supporting organizations such as charitable trusts which benefit a public charity or fundraising foundations for a university or hospital.

Keep in mind that under the CARES Act, your 100% limit will be reduced dollar-for-dollar by other itemized charitable deductions. This means that in 2020, if you deduct 40% of your adjusted gross income in long-term appreciated property gifts, you will be able to also deduct up to 60% of your adjusted gross income for qualified cash gifts—a total deduction of up to 100% of your adjusted gross income.

The IRA Qualified Charitable Distribution (QCD)

In December of 2019, the SECURE Act was enacted. IRA owners and certain participants in qualified retirement plans are required to take distributions beginning at the age of 72. The mandatory beginning age had been 70½. Under the CARES Act, for the year 2020, there will be no mandatory distributions–regardless of the age of the donor.

Donors who are 70½ or older are still allowed to transfer up to $100,000 to Interlochen and other charities as a Qualified Charitable Distribution (QCD) in 2020. A QCD can be used to pay a pledge, and the amount transferred is still excluded from taxable income—with no need to itemize.

However, making a QCD to Interlochen this year will allow itemizers and non-itemizers alike to direct up to $100,000 from their IRA to Interlochen in a tax-efficient manner. It is also possible to exceed the $100,000 cap due to the modification of charitable deduction limits in 2020.

Example: A donor over the age of 59½ with a large IRA balance not needed for living expenses wants to give more of that IRA now, but do so without paying taxes. In 2020, the donor can both make a full $100,000 QCD and withdraw more from their IRA and then contribute that amount over $100,000 to charity. This adds to the donor’s adjusted gross income, but the donor can deduct the entire amount of that withdrawal since charitable gifts in 2020 are deductible to the full extent of adjusted gross income. This offsets the taxable income, which is the equivalent of a tax-free charitable rollover.

As always when considering tax matters, Interlochen strongly encourages donors to review their personal situation with their tax advice professionals. Please contact Kathleen Kasdorf, Director of Planned Giving, at 231.276.7637 or if you have questions or would like additional information on any of these topics.