INSIGHTi

Temporary Enhancements to Charitable
Contributions Deductions in the CARES Act
June 11, 2020
Individuals and corporations are allowed a deduction for charitable contributions on their tax returns. The
Coronavirus Aid, Relief, and Economic Security (CARES) Act (P.L. 116-136) provided temporary
increased benefits for 2020 for some of these deductions.
Law Before the CARES Act
The deduction for charitable contributions is one of an array of tax benefits for charitable giving and tax
exempt organizations. Individuals may take a charitable deduction if they itemize deductions on their tax
returns. Prior to the 2017 tax revision, popularly known as the Tax Cuts and Jobs Act (TCJA; P.L. 115-
97), the limit on charitable deductions for individuals was 50% of adjusted gross income for gifts (other
than gifts of appreciated property) to public charities. (The limit was 30% for gifts of appreciated
property, 30% for ordinary gifts to private foundations, and 20% for gifts of appreciated property to
private foundations.) The TCJA increased the 50% limit to 60% through 2025 for cash contributions. The
TCJA also made unrelated changes through 2025 (i.e., an increased standard deduction and limits on other
itemized deductions) that made itemized deductions less attractive and reduced the share of taxpayers
with a deduction for charitable contributions from an estimated 21% to 9%.
The corporate charitable deduction is limited to 10% of taxable income. Corporations (and individuals, in
some instances) are also allowed special deductions for contributions of inventory. Normally, charitable
inventory contributions are limited to the lesser of basis (cost) or fair market value, with inventory
reduced by the contributions (as a result of this limitation, any inventory cost that is in excess of fair
market value can still be deducted in calculating taxable income as the cost of goods sold). For C
corporations contributing inventory to 501(c)(3) organizations for the care of the ill, the needy, or infants,
special rules provide an enhanced deduction equal to the basis plus half the difference between the fair
market value and basis, not to exceed twice the basis. A similar enhanced deduction exists for businesses
(both corporate and noncorporate) for food inventory contributions for the care of the ill, needy, and
infants. Cash basis taxpayers who do not keep inventories (including many farmers and some other small
businesses) are allowed to deduct half the fair market value under the enhanced food inventory deduction,
even though they already deduct these costs as a business expense. This enhanced deduction for food
inventory is limited to 15% of taxable income from the business for both individuals and corporations.
Congressional Research Service
https://crsreports.congress.gov
IN11420
CRS INSIGHT
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Unused charitable deductions that exceed the income limits can be carried forward and deducted in the
following five years.
Enhanced Charitable Contributions Incentives in the
CARES Act for 2020
The CARES Act provided for three enhancements to the charitable deduction for 2020. First, it provided
for a deduction for cash donations for nonitemizers of up to $300. That is, taxpayers can deduct these
amounts even if they elect the standard deduction. Second, it eliminated the limit on cash gifts of
individuals to public charities (but not to donor advised funds, supporting organizations, or private
foundations). Third, it increased the limit on charitable contributions from corporations to 25% of taxable
income (including donations of qualified food inventory). The deduction for contributions of qualified
food inventory for individuals was also increased to 25%.
Revenue and Economic Effects
The revenue losses for the deduction for nonitemizers and the increased limits (for individuals and
businesses) are estimated at $1.5 billion and $1.1 billion, respectively, for FY2020-FY2030. Because of
the five-year carryforward, the revenue loss for the increase in income limits is $4.8 billion in the first two
fiscal years, partially offset by gains in the following four fiscal years as carryovers decrease (all of the
loss for the nonitemizer deduction is in the first two fiscal years).
The $300 nonitemizer deduction is likely to have a limited effect on charitable contributions because of
its relatively small caps. One study estimated that the induced charitable giving from the nonitemizer
deduction would be $100 million, because most taxpayers who contribute are already contributing
amounts in excess of $300 and, in addition, may not be aware of the deduction until taxes are filed in
2021.
Lifting caps on the deductions for both individuals and businesses can provide an incentive for additional
charitable giving. Evidence on the response of charitable giving by individuals has been widely studied
with mixed results. A review of this evidence suggests that an enhanced charitable deduction is likely to
increase charitable giving by less than the associated revenue loss. Lifting the limits affects a relatively
small share of charitable giving, and the revenue pattern suggests that much of the initial revenue loss
(77%, that is, [1-1.1/4.8]) can be attributed to an accelerated realization of carryovers. With charitable
giving estimated at $427.4 billion in 2018, if all of the permanent revenue loss led to an increase in
charitable giving by the same amount (i.e., $.1.1 billion), additional giving would be 0.3% (1.1/427.7) of
expected giving prior to the current economic slowdown.
Proposals to Increase Charitable Giving Incentives
Several proposals have been made in Congress to provide either a permanent or temporary increased
nonitemizer deduction (in some cases capping the deduction at one-third of the standard deduction,
resulting in a limit of slightly over $8,000 for a joint return). One study indicated that this capped
deduction would cost around $14 billion in 2020 (estimated before the coronavirus’s effect on the
economy). A nonitemizer deduction with a floor (i.e., deductions allowed only for contributions above a
threshold, either a dollar amount or percentage of income) rather than a ceiling would induce more
contributions per dollar of revenue loss. A floor could be extended to itemized deductions as well, to raise
revenue to fund additional benefits, with minimal effect on the incentive effect of the deduction. The

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Congressional Budget Office has estimated that a floor of 2% of adjusted gross income for itemizers
would raise $14 billion in revenue in FY2020 (estimated before the coronavirus’s effect on the economy).



Author Information

Jane G. Gravelle

Senior Specialist in Economic Policy






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