The CARES Act and Its Impact on Charitable Giving and Estate Planning

As the U.S. faced the growing public health and economic crisis brought on by COVID-19, Congress passed the CARES Act in March 2020. The goal of the $2 trillion relief package was to deliver economic assistance directly to families and businesses and as quickly as possible. We have all heard in the news about the direct Economic Impact Payments in the amount of $1,200 to individuals, increases in federal unemployment benefits, and the Paycheck Protection Program (PPP) for businesses.

The CARES Act also includes provisions that impact charitable giving and estate planning. First, for taxpayers who do not itemize and who take the standard deduction, the CARES Act allows for charitable contributions up to $300 to be deducted. The donations must be in cash and to a public charity. Non-cash donations, such as automobiles, real estate, or investments, are not eligible. For those who have the ability to make a charitable contribution this year, this a great opportunity to do so and receive a tax benefit. This provision allows for an ‘above the line’ deduction, and so itemizing deductions is not required.

Taxpayers with the ability to make a larger donation in 2020 may deduct up to 100% of their adjusted gross income (AGI) donated to a public charity. This is an increase in the 60% AGI limit on such charitable deductions. While few individuals may be able to contribute all of their income to charity, the intent of these provisions is to encourage those who can to make such donations now so that they may be used by charitable organizations to fight the COVID-19 pandemic. As mentioned, donations must be to a public charity and not to a donor-advised fund, supporting organization, or private foundation.

For those with qualified retirement funds, IRAs, 401Ks, 403(b)s and 457(b)s, required minimum distributions (RMDs) are suspended for 2020. This provision of the CARES Act applies to individual IRAs and inherited IRAs. (If you already took your 2020 RMD, the window to roll them back into the account has passed, unfortunately).

Lastly, Section 2202 of the CARES Act allows ‘qualified individuals’ to take a coronavirus-related distribution up to $100,000 out of a qualified retirement account. The normal $10,000 penalty for those under 59 1/2 does not apply. No federal income tax withholding has to be paid at the time of distribution and not in the future, so long as the distribution is paid back into the account within three years. If not paid back into the account, the distributions are included as taxable income over the next three years, starting the year the distribution was taken. The CARES Act also provides some loan relief to those who have taken a loan from their qualified retirement account.

For more information on the CARES Act provisions, go to IRS.gov. We also encourage you to talk to your financial advisor and tax advisor. Just how the CARES Act provisions apply to your own financial situation should be determined by you and your advisors.

Any requests for topic suggestions may be sent to rene@breenandperson.com. Although we cannot give you legal advice through the column, we can provide some general information that may be helpful for you to know. Our purpose is to educate and we hope that you can take something new away from this column each time you read it.