On December 27, 2020, the U.S. Government extended many of the charitable giving provisions contained in the original CARES Act enacted in March 2020 in response to the COVID-19 Pandemic.
These provisions will remain in effect for 2021.
100% AGI DEDUCTION FOR CASH GIFTS IN 2021
Taxpayers are permitted to deduct cash gifts made to qualifying public charities such as the Urban Land Institute Foundation up to 100% of their adjusted gross income (AGI). This benefit is limited to cash gifts and does not apply to any other type of asset donated.
This enhanced deduction for cash gifts is currently set to expire after 2021. This increased AGI limit does not apply to donations made to Private Foundations, Donor-Advised Funds, or split interest trusts. Gifts to these vehicles are still deductible but at their established AGI limitations. However, the deduction produced by funding a charitable gift annuity with cash will qualify for the enhanced AGI limitation if the annuity is established in 2021 with a qualifying public charity.
PRACTICAL EFFECT FOR CHARITABLE GIVING
Donors who itemize their deductions may continue to realize greater tax benefits in 2021 by making their charitable gifts with appreciated assets like stock, mutual fund shares, or real estate. However, some donors may find it beneficial to discuss the possibility of cash gifts in 2021 with their professional advisors. Here are some situations where discussing cash gifts in 2021 with their advisors may make sense:
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- Donors who are exceptionally generous in relation to their AGI most years who bump up against the normal AGI limits and cannot benefit from unused carryover income tax deductions in future years.
- Donors who experience a major wealth event in 2021 (such as the sale of a business or real estate), or who convert an IRA to a Roth IRA this year. In these situations, donors may find that they have an unusually high level of income in 2021 which is expected to decrease substantially in future years.
- Donors aged 59 1/2 or older who wish to make a special charitable gift in excess of $100,000 (perhaps paying off a large pledge) and have a large IRA or 401(k) they do not need to support their future lifestyle. Donors may consider a withdrawal that would be taxable as income, but then give that same cash amount to charity and take a 100% of AGI charitable deduction that could potentially eliminate income tax due on the withdrawal in 2021.
NON-ITEMIZER’S CHARITABLE DEDUCTION
The CARES Act legislation that was enacted in March 2020 contained a provision that allows a taxpayer who takes the standard deduction rather than itemize to claim a deduction up to $300 for charitable gifts made with cash in 2020. This benefit was extended in December 2020 through 2021 and expands the available deduction from a maximum of $300 per return to $300 per single filer or $600 for those married and filing jointly.
The deduction is available only for cash gifts to qualifying public charities. It is not available for gifts to Private Foundations, Donor-Advised Funds, or split interest trusts. However, a donor who creates a charitable gift annuity with a public charity will be permitted to claim this above-the-line deduction.
Disclaimer: This publication was created to promote charitable gifts. The Urban Land Institute Foundation does not give tax advice, and the information above is not intended as such. The information provided is general in nature and is not a representation as to the actual tax consequences of a particular contribution. It is important for donors to discuss their own unique financial circumstances and charitable giving strategies with their professional advisors and to rely on that advice.
