Last week, President Biden signed the American Rescue Plan (ARP), a $1.9 trillion package of initiatives aimed at facilitating the U.S.’s recovery from the health and economic effects of the COVID-19 pandemic. The ARP provides economic assistance to individuals in a variety of ways, primarily to Americans making less than $75,000/year (or couples making less than $150,000/year). It also extends the Paycheck Protection Program for businesses, creates block grants to help schools reopen and expand childcare, provides aid to state and local government, and much more.
Yesterday, President Trump signed into law the Consolidated Appropriations Act, 2021, which will provide $900 billion in coronavirus relief and $1.4 trillion to continue to fund the government. The legislation covers a lot of territory and clocks in at over 5,500 pages. Because of the delay in passage and further delay in signing, there is little time before 2020 ends for donors to ask what will be extended and what will be changed for 2021. Below is our reporting of a few key provisions in this law that will impact fundraisers and donors.
The CARES Act and 2020 Charitable Tax Benefits Legislation known as the CARES Act introduced significant incentives to stimulate charitable giving in response to the Covid-19 pandemic. Some of those important tax incentives expire on December 31, 2020. Your donors will need to act quickly to take advantage of these tax-smart ways of giving before they are gone. Listed below are the most significant provisions applicable to charitable giving included in the CARES Act.
Following the December 2017 passage of the 2017 Tax Act, some in the gift planning community raised the question of whether the 2017 Tax Act’s elimination of miscellaneous itemized deductions extended to the deduction for unrecovered investment in contract (UIC) at the death of the last annuitant of a charitable gift annuity, as that deduction had appeared under the heading “Other Miscellaneous Deductions” on Form 1040 Schedule A. But the 2017 Tax Act only eliminated the miscellaneous deductions subject to the 2% floor, which the UIC deduction was not subject to. The UIC deduction remains available, as is confirmed in the tax forms, instructions, and publications the IRS has issued to reflect the 2017 Tax Act changes for 2018. This deduction equals the total of all tax-free portions of the annuity that have not yet been distributed as of the death of the last annuitant and is taken on the deceased’s final income tax return.
Among the many changes wrought by the tax law passed at the end of 2017, one welcomed by the charitable community was the increase in the deduction limit on gifts of cash to public charities from 50% of a donor’s adjusted gross income (AGI) to 60%. We have read this section of the new law carefully and determined that the application of the 60% limit is more complicated – and, well, limited – than many realize. We lay out below how we understand the 60% limit should be applied and how it interacts with the 30% and 50% limits.