1 1 (June 11, 2020)

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               Researh Sevice

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

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