In an effort to keep our clients apprised about the tax aspects of the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”), Thomas & Libowitz, P.A. offers free consultations and the below outline of three major tax aspects of the CARES Act. The publishing of this information is not intended to provide tax advice as each taxpayer’s situation is different and you should contact your tax adviser before making any decisions.
During the first quarter of this year, Congress passed, and the President signed the CARES Act. The CARES Act provided more than Two Trillion Dollars in tax relief and economic stimulus to the American economy. Despite some hiccups in the administration of the CARES Act, several tax provisions stand out as unique and worthy of mention.
We’d like to call your attention to the following:
• Gifts to public charities in 2020 may now be deducted up to 100% of taxpayer’s’ AGI: For tax year 2020, donors may deduct up to 100% of their adjusted gross income (AGI) for cash gifts to public charities (i.e., those charities which by statue currently allow deductibility up to 60% of a taxpayer’s AGI). Note however, 509(a)(3) supporting organizations and donor advised funds are not included in this one-year exception. There is a catch. This 100% deductibility limit is reduced by other itemized deductions, dollar-for-dollar. That makes sense, Congress will not give taxpayer’s a deduction greater than his or her income. If a taxpayer utilizes all his or her deduction cap space with cash gifts to public charities, no federal tax would be due for tax year 2020. But don’t jump too quickly. There may be value in stretching out the deduction over several years. For public charities (churches, schools, and hospitals), this change in the tax landscape could create wonderful opportunities for major 2020 gifts. The new rule does not in any way limit the deduction carry forward if the taxpayer elects to stretch the unused deduction amount over the subsequent five tax periods.
• Required minimum distributions (RMDs) waived in 2020: RMDs will not be required in 2020 from your IRA, 401(k), 403(b) and most other defined contribution plans maintained by your employer. However, if you have already begun taking RMDs you will be required to continue to do so from defined benefit pension plans and some 457 plans (non-qualified plans sponsored by non-profits or government). But, if your RMDs were to have started in 2020 the start date has been postponed until next year. This includes the defined benefit pension plans and the “457” plans.
If you are currently over age 70 ½ and have planned to make a charitable gift of IRA assets, you still can. These gifts must be made directly to a qualified charity (publicly supported charities) and you will neither be taxed on the distribution nor allowed a charitable income tax deduction. But, to the extent you have an RMD and make a charitable transfer, your RMD requirement will have been nevertheless met.
While gifts of appreciated assets can allow the taxpayer to avoid capital-gains tax and receive a full fair market value deduction, making gifts from an IRA can make tax sense even if there is no immediate income tax deduction. By holding the highly appreciated taxable assets until death, the beneficiaries will benefit from a step up in basis and avoid the capital gains taxes in large part. Transfers of IRA assets upon death are subject to ordinary income tax.
• For 2020, non-itemizers are eligible for an above the line $300 charitable deduction from income, (for couples filing jointly, $600): That’s right, an “above-the-line” deduction is available for charitable gifts by non-itemizers in addition to the standard deduction of $12,000 ($24,800 for married couples filing jointly). Although the above the line deduction of $300 may seem insignificant, hey take what you can. For a taxpayer in the 28% bracket, the deduction saves you taxes of $84. The deduction is only available for cash gifts to public charities, but not for gifts to private foundations, supporting organizations or donor advised funds.
If you have more questions about the above aspects of the CARES Act and its applicability to your circumstances, please feel to contact the tax lawyers at Thomas & Libowitz, P.A.