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On March 27, 2020 — in response to the economic fallout of the COVID-19 global pandemic — the Coronavirus Aid, Relief, and Economic Security Act was signed into law. The Coronavirus Aid, Relief, and Economic Security Act, also known as the CARES Act, provided emergency financial assistance to individuals, families, and businesses affected by the COVID-19 outbreak. It also presented considerable tax incentives for AOPA Foundation supporters for the 2020 tax year.
As we embark on our journey through 2021, the relief package passed in December of 2020 extended the tax benefits for contributions to non-profits. In one respect, it expanded those incentives.
The CARES Act established a “universal charitable deduction” for 2020. This was a new “above-the-line” deduction of up to $300 for individuals — who do not itemize and will take the standard deduction on their 2020 tax returns — making cash donations to charity. The new rescue package extended the universal charitable deduction through 2021.
The new bill also expanded that universal charitable deduction to include those filing jointly. For the 2021 tax year, the same $300 “above-the-line” deduction still applies for individuals; however, those filing jointly will be able to deduct up to $600.
Tax incentives are even greater for those that itemize. The CARES Act removed the 60% of adjusted gross income (AGI) limitation for most cash gifts to public charities for 2020. That cap has also been removed for 2021, meaning you are able to offset up to 100% of your adjusted gross income with charitable contributions.
The relief of income limitations on charitable gifts is temporary; but offers substantial planning opportunities for those who may want to consider recognizing certain income, since it could be fully offset by charitable gifts. For example, while these measures do not apply to gifts of securities, if you have securities that have declined in value below your cost, you could choose to sell those securities, realize the capital loss, and contribute the cash without regard to percentage limitations.1
Another approach would be to use the capital loss to offset gains on the sale of appreciated assets to generate cash that can be used to make charitable contributions without percentage limitations. Even if you recognize a capital gain, by donating the sale proceeds, you could eliminate taxes on ordinary income, leaving only capital gains to be taxed.1
These temporary changes for 2020 and 2021 can greatly benefit those
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