Temporary Enhancements to Charitable Contributions Deductions in the CARES Act

Temporary Enhancements to Charitable Contributions Deductions in the CARES Act

INSIGHTi

Temporary Enhancements to Charitable
Contributions Deductions in the CARES Act
Updated February 5, 2021
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. These provisions were extended through 2021
by Division EE of the Consolidated Appropriations Act, 2021 (P.L. 116-260).
Law Before the CARES Act
The deduction for charitable contributions is one of several tax benefits for charitable giving and tax
exempt organizations. Individuals may take a charitable deduction if they itemize deductions. Prior to the
2017 tax revision, popularly known as the Tax Cuts and Jobs Act (TCJA; P.L. 115-97), the limit 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 increased the standard deduction
and limited other itemized deductions, reducing the share of taxpayers with a charitable contributions
deduction from an estimated 21% to 9%.
The corporate charitable deduction is limited to 10% of taxable income. Corporations (and individuals, in
some instances) are allowed special deductions for contributions of inventory. Normally, inventory
contributions are limited to the lesser of basis (cost) or fair market value, with inventory reduced by the
contributions (so that 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, the deduction is the basis plus half the
difference between the fair market value and basis, up to 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, plus deducting the cost 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
Prepared for Members and
Committees of Congress

Congressional Research Service
2
Charitable deductions exceeding the income limits can be carried forward and deducted in the following
five years.
Enhanced Charitable Contributions Incentives in the
CARES Act for 2020 and 2021
The CARES Act and the Consolidated Appropriations Act, 2021 provided for three enhancements to the
charitable deduction for 2020 and 2021. First, they provided a deduction for cash donations for
nonitemizers of up to $300 who take the standard deduction. Second, they eliminated the limit on cash
gifts of individuals to public charities (but not to donor advised funds, supporting organizations, or private
foundations). Third, they increased the limit on charitable contributions from corporations (including food
inventory) and individual contributions of food inventory to 25% of taxable income.
Revenue and Economic Effects
The revenue losses for the deduction for nonitemizers and the increased limits (for individuals and
businesses) for the CARES Act 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 revenue losses
for extending these two provisions to 2021 for the Consolidated Appropriations Act, 2021 are $2.9 billion
and $0.8 billion, respectively for FY2021-FY2030.
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.
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 $449.6 billion in 2019, 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 0.2% (1.1/449.64) 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 (i.e.,
slightly over $8,300 for a joint return in 2021). 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 Congressional Budget Office

Congressional Research Service
3
has estimated that a floor of 2% of adjusted gross income for itemizers would raise $14 billion in revenue
in FY2022.

Author Information

Jane G. Gravelle

Senior Specialist in Economic Policy

Disclaimer
This document was prepared by the Congressional Research Service (CRS). CRS serves as nonpartisan shared staff
to congressional committees and Members of Congress. It operates solely at the behest of and under the direction of
Congress. Information in a CRS Report should not be relied upon for purposes other than public understanding of
information that has been provided by CRS to Members of Congress in connection with CRS’s institutional role.
CRS Reports, as a work of the United States Government, are not subject to copyright protection in the United
States. Any CRS Report may be reproduced and distributed in its entirety without permission from CRS. However,
as a CRS Report may include copyrighted images or material from a third party, you may need to obtain the
permission of the copyright holder if you wish to copy or otherwise use copyrighted material.

IN11420 · VERSION 2 · UPDATED