Charitable Cash Contributions Under the CARES Act

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The CARES Act rules were temporary 2020 relief

The Coronavirus Aid, Relief, and Economic Security Act became law on March 27, 2020. Sections 2204 and 2205 changed federal charitable-contribution deductions for tax years beginning in 2020.

Those provisions addressed two different groups. Section 2204 created a limited deduction for eligible taxpayers who did not itemize, while Section 2205 temporarily increased percentage limits for specified contributions claimed by itemizers and businesses.

The tax year controls the analysis. A taxpayer preparing a 2020 return or amendment must use the 2020 statute and instructions, while a gift made in 2026 follows the law and forms applicable to 2026 rather than the expired CARES Act rule.

Nonitemizers could deduct up to $300 in 2020

For 2020, an eligible individual who did not itemize could deduct qualified charitable contributions in computing adjusted gross income. The maximum was $300 for a tax-filing unit, including a married couple filing jointly.

This was commonly called an above-the-line deduction because the taxpayer could claim it without Schedule A. It reduced adjusted gross income but did not turn the standard deduction into an itemized return.

A married couple filing separate 2020 returns applied the statutory limitation to each separate return under the 2020 rules. The later 2021 provision used different wording and permitted up to $600 for qualifying married joint filers, so the 2021 amount should not be projected backward onto 2020.

Only qualifying cash contributions counted

The 2020 nonitemizer deduction covered cash contributions paid during the year to eligible charitable organizations. “Cash” included monetary payments made by check, credit card, debit card, or electronic transfer, not only physical currency.

Donated clothing, household goods, securities, vehicles, food, and volunteer time did not qualify for this particular $300 deduction. Those items could have separate itemized-deduction treatment if all applicable requirements were met.

The statute also excluded contributions to supporting organizations and amounts used to establish or maintain a donor-advised fund. A carryover from an earlier year was not a current-year qualified contribution for the above-the-line deduction.

The recipient had to be an eligible organization

A payment needed to go to an organization described in the applicable charitable-contribution provisions. Gifts to individuals, even when motivated by hardship or generosity, were not deductible charitable contributions.

Many public charities, religious organizations, educational institutions, hospitals, and governmental units can receive deductible gifts, subject to their status and the purpose of the payment. Readers evaluating religious gifts can review when donations to churches are tax deductible.

The organization’s name or online fundraising message was not enough by itself. Donors could use the IRS Tax Exempt Organization Search and retain evidence identifying the actual recipient.

Itemizers could elect a temporary 100% limit

Before the temporary change, cash contributions by individuals to many public charities were generally subject to a percentage-of-contribution-base limit. The CARES Act allowed an individual to elect a 100% limit for qualified contributions made during 2020.

For an individual, contribution base generally tracks adjusted gross income computed without specified net-operating-loss carrybacks. The election could allow qualifying 2020 cash gifts to offset a much larger share of income than under the ordinary percentage limit.

The 100% figure was a ceiling, not an automatic deduction equal to adjusted gross income. The taxpayer still needed an actual qualifying contribution, enough contribution base, proper itemization, and substantiation.

The election applied contribution by contribution as provided by the temporary rules. Qualified contributions were taken into account after other charitable contributions when applying the coordinated percentage limitations.

Not every charity qualified for the 100% election

The increased individual limit generally focused on cash gifts to qualifying public charities. Contributions to private foundations, supporting organizations, and donor-advised funds were excluded from the special definition.

Noncash gifts did not become subject to the 100% limit merely because they supported an eligible public charity. Their classification, valuation, appraisal, and ordinary percentage limits continued to matter.

Amounts exceeding the available limit could be subject to the ordinary five-year carryover framework. Carryover use in a later year depended on that later year’s ordering and limitation rules.

Businesses received separate temporary limits

The CARES Act increased the corporate limit for qualifying charitable contributions from 10% to 25% of taxable income for 2020, subject to an election and statutory calculation. This corporate rule was separate from the individual nonitemizer deduction.

The Act also increased the percentage limit for certain contributions of food inventory from 15% to 25% for contributions made during 2020. Food inventory involved special valuation, use, recipient, and certification requirements.

A sole proprietor did not use the corporate percentage merely because the gift related to a business. Entity type and the identity of the donor controlled which provision applied.

Substantiation rules still applied

A bank record or written communication from the charity was generally required for a monetary contribution. The record needed to show the organization’s name, contribution date, and amount.

For a contribution of $250 or more, the donor generally needed a contemporaneous written acknowledgment from the organization. The acknowledgment had to state the amount of cash and describe whether the organization provided goods or services in return.

If goods or services were received, only the amount exceeding their fair market value could potentially be deductible, subject to the rules. A canceled check alone did not replace the acknowledgment required for a contribution of $250 or more.

The 2021 extension was similar but not identical

Later legislation extended pandemic-era charitable relief into 2021. The nonitemizer provision for 2021 allowed up to $300 for most eligible filers and up to $600 for married couples filing jointly.

The increased percentage limit for qualifying cash contributions also continued for 2021 under the extension. A taxpayer must therefore separate 2020 contributions from 2021 contributions instead of combining the two years’ maximums or instructions.

Neither extension made the pandemic rules permanent. Current-year gifts require current-year authority and cannot be claimed under a form line that existed only for 2020 or 2021.

Amending a 2020 return requires the 2020 record

A taxpayer reviewing a possible missed 2020 deduction should first confirm that the contribution was paid in 2020, was cash, went to a qualified recipient, and was not already included on Schedule A. The taxpayer should also verify whether the original return used the standard deduction or itemized deductions.

Form 1040-X generally provides the amendment mechanism, but refund claims are subject to statutory time limits. An expired refund-claim period is not revived merely because the original deduction was overlooked.

Keep the original return, amended calculations, payment records, charity acknowledgments, and evidence of recipient status together. The temporary nature of the rule makes the contribution year particularly important.

Sources

• CARES Act Sections 2204 and 2205
• IRS Publication 526 for 2020
• IRS 2020 Schedule A instructions
• IRS explanation of the 2021 extension
• Current IRS Publication 526 charitable-contribution guidance
• IRS charitable contribution deduction overview
• IRS Tax Exempt Organization Search guidance
• IRS amended-return and refund-claim timing guidance