If itemizing what is maximum allowed for 2020 deduction for qualfied charities?

[Mike9241 · Accepted solution]

Under the law known as the Tax Cuts and Jobs Act, P.L. 115-97, the rule that limits the charitable deduction to 50% of the donor's charitable contribution base increased to 60% for tax years beginning after Dec. 31, 2017, and before Jan. 1, 2026 (for cash contributions to public charities and private operating foundations). For 2020 only, this limit has been raised to 100% under Section 2205 of the CARES Act for qualified contributions (cash donations to a public charity that is not a donor-advised fund or a supporting organization that the taxpayer elects to treat as qualified contributions).

While the percentage limit has been temporarily increased to 100% for qualified contributions, taxpayers can make the qualified contribution election separately for each contribution and thus do not have to elect to treat all of their charitable contributions that would otherwise qualify as qualified contributions if they would not receive a tax benefit from doing so. For example, assume that a taxpayer has adjusted gross income (AGI) of $150,000 in 2020 and has itemized deductions of $10,000 of state taxes and $20,000 of deductible mortgage interest and makes cash charitable donations of $10,000 each to 15 qualified charities in 2020. The taxpayer's charitable contribution base (i.e., AGI without regard to any net operating loss carryback) is $150,000.

If the taxpayer elects to treat only three of the 2020 charitable contributions as eligible contributions for the 100% limit in 2020, the remaining $120,000 will be subject to the 60% limitation of $150,000 × 60% = $90,000. Her taxable income will be $150,000 - $10,000 (state taxes) - $20,000 (mortgage interest) — $90,000 (60% charitable limit) — $30,000 (100% charitable limit) = $0, and she will have a $30,000 charitable contribution carryover to 2021 that will be subject to the 60% limitation in 2021. The election allows the taxpayer to limit the 2020 charitable deduction to an amount less than 100% of the charitable contribution base so that taxable income does not become negative due to nonbusiness itemized deductions.

Additionally, there is a unique opportunity this year for clients with charitable contribution carryforwards to 2020. Under Sec. 170, current-year contributions are used first in determining the amount of the charitable deduction allowed in any given year. However, in 2020 under Section 2205 of the CARES Act, qualified contributions are disregarded for purposes of the limitation in Sec. 170(b), which applies to current-year percentage limitations, and the limitation in Sec. 170(d), which applies to carryovers of excess contributions from prior years.

[ngoodless1 · Accepted solution]

Thanks Mike. You answered my question completely.

[Kirkeby]

While I see the 100% AGI limit mentioned on at least one screen in your 2020 Premier software, the final  calculation is still 60%, with the attached note explaining why not all my deduction was allowed mentioning 60%. 

I've contributed to a DAF in combination with contributions to individual charities, essentially matching my AGI.  How will the software treat this type of situation?   Are there different caps on DAFs that can be combined with direct charitable donations?  Is there an software update that will accommodate this case? 

[DaveF1006]

Yes. Currently, DAF will not qualify as 100% AGI deduction until the IRS can establish clear guidelines for approval.  Currently, the IRS "is aware of a number of organizations that appeared to have abused the basic concepts underlying donor-advised funds. These organizations, promoted as donor-advised funds, appear to be established for the purpose of generating questionable charitable deductions, and providing impermissible economic benefits to donors and their families (including tax-sheltered investment income for the donors) and management fees for promoters." Given the discretion given to the donor representative, they have  advisory privileges with respect to the distribution of funds and the investment of assets in the account.

You can view the information given in this link.

[pjb36]

We are at February 1 and Turbotax has not yet updated for the 2020 charitable contribution limitation and I have not been able to get an answer as to when that will be done.

[KathrynG3]

The program is already done. Your specific maximum depends on the rest of your situation, and whether the standard deduction or itemized deductions is chosen. The program includes the expanded limits, which allow charitable donations up to 100% of your Adjusted Gross Income.

Two new areas were added, but you will not see them until the entries trigger the extra questions. 

• For large donations, once a large donation amount is entered and you have selected Continue, then the new TurboTax will ask Were any of your donations to a fraternal order, veteran's group, nonprofit cemetery or other 30% charity? Answer yes or no and Continue through the rest of the interview.
  
  All donations that meet the criteria under the Cares Act will qualify for the 100% of Adjusted Gross Income deduction automatically in TurboTax. To qualify, the IRS clarifies that the contribution must be:
  • made during the calendar year 2020
  • made to a qualifying organization;
  • a cash contribution;
    ​​​​​​​​​

• To qualify for the Cares Act above-the-line deduction of up to $300 for all filing statuses except married filing separately at $150 each, for standard deduction filers, keep in mind the IRS clarifies that the contribution must be:
  1. a cash contribution;
  2. made to a qualifying organization;
  3. made during the calendar year 2020
  
  To trigger this screen, run through all the deductions and credits and click Wrap Up Tax Breaks again to trigger the Cares Act Charitable Donation without itemizing your deductions screen. Enter the amount up to $300 for all taxpayers except married filing separate, who would each have a maximum of $150, and proceed through the rest of the interview.

To enter charitable donations in TurboTax, follow these steps:

• From the left menu, select Federal
• Four tabs will appear across the top of your program. Select the second tab, Deductions & Credits.
• Scroll to Charitable Donations and select Start to begin. 
   
• Answer Yes to Do you want to enter your donations for 2020?
• For each donation, follow these steps:
  • Enter who the donation was to at Let's enter your donations one at a time and indicate what type of item was donated, either an Item, Money, Stock, or Mileage and travel expenses
  • Follow the prompts from there, and enter the amount of the donation 
  • When finished, select Done with This Donation
     
• Select + Add Another Donation if you have additional entries and Continue. 

For more information, see IRS Charitable Contributions Deductions

[Edited 02/20/2021 | 5:31 AM PST]

@pjb36

[Kirkeby]

Thank you for your reply.  After some trial and error, the question you refer to finally appeared.

My follow-on question would be, 

How does TurboTax handle the combination of cash and stock donations to a Donor Advised Fund?  Is this a multi-stage process?  Does it require more than one transaction/input?

Thanks for you time!

[Cynthiad66]

Cash and stock donations are entered separately.  Enter Cash on the first line then there is a section for Other Than Cash.  Instructions below.

When entering your stock donation into TurboTax, be sure to enter the Value on the Date of Donation in the correct box. TurboTax also asks for your Cost Basis in a separate box, be sure that the correct amount is being reported in each box.  Here is how to enter stock donations:

Filling Out Your Tax Forms: Form 8283

1. The name and the address of the organization you donated to.
2. Description of the donated property (the number of shares and the name of the company).
3. Date of contribution.
4. The fair market value of the property (market value).
5. The method used to determine the fair market value.

After you have held stock for more than one year and its price has risen, at the time of the donation you get a tax deduction equal to the fair market value of the stock (i.e. not your lower purchase price, technically known as the cost basis). Shares gifted to donor-advised funds receive the same tax treatment.