Since the Trump tax law in 2017 increased the standard deduction and capped the deduction for state and local taxes, the number of people who take the standard deduction increased from 70% of all taxpayers to 88%. I was part of the change. I switched to taking the much simpler standard deduction in the last two years. It also means I didn’t get an extra tax deduction for donating to charities. It was all included in the standard deduction.
The CARES Act passed earlier this year created a new above-the-line charitable contributions deduction for the 88% of all taxpayers who don’t itemize deductions. To qualify for this new deduction, the donations have to be in cash, and they have to be donated directly to charities. Donating household items to Goodwill doesn’t count. Donating appreciated stocks doesn’t count. Giving to a donor-advised fund doesn’t count. Because TisBest is officially a donor-advised fund, buying a charity gift card there probably doesn’t count either.
It’s a one-off deal for only 2020 (see CARES Act Charity Donation Deduction: Ongoing or Only 2020?). The deduction is capped at $300. While it’s clear when you’re single, it’s a little ambiguous whether it’s $600 per married couple filing jointly or still $300. Here’s the relevant part from the text of the CARES Act (bold added by me):
SEC. 2204. ALLOWANCE OF PARTIAL ABOVE THE LINE DEDUCTION FOR CHARITABLE CONTRIBUTIONS.CARES Act (page 65)
(a) IN GENERAL.—Section 62(a) of the Internal Revenue Code of 1986 is amended by inserting after paragraph (21) the following new paragraph:
‘‘(22) CHARITABLE CONTRIBUTIONS.—In the case of taxable years beginning in 2020, the amount (not to exceed $300) of qualified charitable contributions made by an eligible individual during the taxable year.’’.
Because it said “individual,” a literal reading may interpret it as $600 per married couple filing jointly. From the TaxACT blog:
Thanks to federal coronavirus relief legislation, taxpayers are now able to take advantage of a new deduction for donating to qualifying charities — up to $300 for individual filers and up to $600 for married couples.
However, some sources said it’s still $300 for married filing jointly. From Kiplinger:
The CARES Act, among other coronavirus relief efforts, has instituted a provision allowing people to deduct $300 for charitable contributions. If you are married and filing jointly, your deduction is still limited to $300.
So what is it when you’re married filing jointly? $300 or $600? We have the definitive answer on page 29 of the IRS Form 1040 Instructions (bold added by me):
If you don’t itemize deductions on Schedule A (Form 1040), you (or you and your spouse if filing jointly) may be able to take a charitable deduction for cash contributions made in 2020.
Enter the total amount of your contributions on line 10b. Don’t enter more than:
• $300 if single, head of household, or qualifying widow(er);
• $300 if married filing jointly; or
• $150 if married filing separately
That resolves it. The above-the-line deduction for 2020 is capped at $300 per tax return whether you’re single or married filing jointly. It’s capped at $150 each if you’re married filing separately.
[Update] Just to make it more confusing, Congress passed a new law that extended this deduction to 2021, and the cap in 2021 for married filing jointly is increased to $600. The cap in 2020 for married filing jointly is still left at $300. See 2021 $300 Charity Deduction For Non-Itemizers $600 Married.
State Income Tax
Some states use the federal Adjusted Gross Income (AGI) as a starting point. Because this $300 lowers your federal AGI, your starting point for state income tax is also lower. If the state allows a deduction for charity donations, it makes sense to add back the $300 and then let you deduct 100% of your donations. Otherwise you’ll be double-dipping. If the state doesn’t allow a deduction for charity donations, adding back the $300 also makes it fair to those who itemize deductions on their federal returns. If the itemizers aren’t able to deduct on the state tax return, you shouldn’t be either.
If you use TurboTax, enter your donation in the deductions section. If TurboTax doesn’t seem to give you the deduction, please read TurboTax 2020 CARES Act $300 Charity Donation Deduction.
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Awesome, thanks for researching this for us.
Frugal Professor says
I didn’t realize that this was an ongoing deduction (until the law is changed). That’s great news!
Harry Sit says
Many items in the CARES Act are only one-time, but this one slipped in permanently.
[Update: It’s for 2020 only, not permanent.]
it’s great if it encourages more people to donate, but the $300 reduction in AGI probably isn’t going to do much of anything for people’s taxes, i guess if they’re borderline qualifying for a credit….
I guess the IRS is the final interpreter of the tax law. Would IRS Form 1040 instructions change when January comes? Or would it remain the same as the draft instructions, based on your experience? My husband and I already donated $600 via Visa card.
Harry Sit says
Wording may change here and there but not the substance.
What about the situation of a married couple filing separately? My assumption would be that each individual could take a deduction up to $300 as long as the sum of both returns does not exceed $300 but there’s not instruction in the code as to how the deduction– if allowed– is to be taken by each spouse.
Also, eligible “individuals” are allowed up to a $300 deduction, does that imply that individual refers to someone who is unmarried AND joint filers?
Harry Sit says
According to the published IRS draft instructions, it’s $300 per tax return. If they’re married filing separately, they get $300 each. [Update: The revised instructions changed the cap for married filing separately to $150 each.] I’m not sure how someone can be unmarried and still file a joint return (with whom?), but if they do, that joint return gets $300 max.
Apologies for the badly worded question. What I meant was that it seems uncommon that the $300 limit is per return, not filer; $300 for an individual, $300 for a joint return, but a $600 total allowed for married filing separately. That’s unusual isn’t it? I’m not aware of other deductions that incentivize filing separately over joint.
BTW, I appreciate the blog. It’s a great resource and I learn something new in just about every one of your posts.
Harry Sit says
Yes it’s unusual. Congress was in a rush to get the CARES Act passed. This little detail wasn’t worth their fine-tuning. Because married filing separately has many other disadvantages, I don’t suppose someone will file separately solely to gain an extra $300 deduction.
Update: The cap for married filing separately is now $150 each.
Harry Sit says
The new IRS 1040 instructions as of December 15, 2020 made it $150 max for married filing separately. I updated the post.
The phrase “taxable years beginning in 2020” in 26 U.S. Code §62(a)(22) for this deduction probably means this is a one year offer only. See https://www.irs.gov/pub/irs-drop/rp-02-38.pdf regarding “taxable year”.
When Congress wants to make something ongoing, it will use phrases such as “taxable years beginning after December 31, 2019.”
For most of us, the taxable year is the same as the calendar year so our taxable year beginning in 2020 is calendar year 2020. For those with a different taxable year, e.g., July 1 – June 30, the year beginning July 1, 2020 is the one in which the $300 above the line deduction is available.
Harry Sit says
You’re correct. I edited the post. Thank you for pointing out the error. I’ll post a correction shortly.
Even more pertinent than the “Don’t enter more than $300.” sentence in the draft instructions is the sentence that immediately follows it: “$300 is the most you can enter on your return even if your filing status is married filing jointly.”
Holyoke Tax Service says
IRS instructions are absolutely not “substantial authority,” there is no doubt that the ambiguity of $300 vs. $600 for joint returns will end up in a court case.
I suppose one can take just about anything to court. Not sure it would be cost effective for any individual couple to do so for a $300 deduction difference.
The IRS seems certain to maintain the $300 MFJ and single limit, especially with the recent change to the draft 1040 Instructions that now limits MFS filers to $150.
[url=https://lawprofessors.typepad.com/nonprofit/2020/04/temporary-universal-charitable-deduction-per-taxpayer-according-to-jct.html]Staff of the Joint Committee on Taxation[/url] were unambiguous in their comments as a “highly persuasive” authority.
As of today (December 21, 2020) the updated language in HR 116 (BILLS-116HR133SA-RCP-116-68.pdf) specifically states “the deduction under this section shall be equal to the deduction, not in excess of $300 ( $600 in the case of a joint return)” for tax year 2021 and beyond, so it’ll be interesting to see if the IRS reads this as the intent for tax year 2020 as well.
Timothy, thanks for the heads-up.
If anything, that recent change (and the lack of any reference to the 2020 above-the-line deduction) might increase the likelihood that the $300 limit for single and MFJ will be enforced for 2020. Note also a recent change to the draft 1040 instructions that reduces the 2020 limit for MFS to $150.
Also of note is that the recent change does not affect AGI, but affects taxable income in much the same way a QBI deduction does. And it’s another “1 year only” change: “any taxable year beginning in 2021”
So to clarify, even if your contributions to charity were, say $2,000, on line 10b, you should still put $300, not the total you contributed ($2,000)?
Harry Sit says
That’s correct. $150 if you’re married filing separately.
Another [mostly] unresolved question seems to be whether this above-the-line deduction must be added back to your income on your state tax return (if applicable). This, of course, will vary state-by-state. New York has explicitly stated that the deduction from the federal AGI must be added back to the income on the state return (see last FAQ at https://www.tax.ny.gov/pit/cares-act-faq.htm). I’m trying to find out for my state (Indiana). H&R Block Online added it back (without much explanation). Credit Karma did not.
Harry Sit says
I see why it should be added back. If the state allows a deduction for charity donations, adding the $300 back and deducting 100% of your donation (including the $300) avoids double dipping. If the state doesn’t allow a deduction for charity donations, not adding it back makes it unfair to those who itemize deductions on the federal return.
Jeff 64 says
Interesting blog. I mis-read the Cares Act concept, thought “up to $300 per charitable organization”. [Insert sad face emoji.] At age 76, could have made more of those sub-$300 donations via directed distribution from my IRA. Live and learn for next year….
Roger T says
A maximum deduction of $300 is not much of an incentive to donate to charities. But if you were allowed to deduct up to $300 for each charity you donate to, then that might add up and become a meaningful deduction if you donated to several charities. Is it possible that TT has misinterpreted this Cares Act provision?
Anything is possible, but in this case the Cares Act language, “the amount (not to exceed $300) of qualified charitable contributions made by an eligible individual during the taxable year” has no reference to a “per charity” amount.