What to Know About the CARES Act
On March 27, the CARES Act (Coronavirus Aid, Relief, and Economic Security Act) was passed into law. CARES is aimed at providing stimulus to the economy through relief to individuals and businesses, forbearance to those who had taken federal student loans and provides incentives to encourage philanthropic giving in 2020. While most of us have heard about the individual stimulus checks, there are many other benefits.
Interest reduction and forbearance of qualified loans:
A significant provision provided by the Act is to provide relief to student loan borrowers during the COVID-19 national emergency. Federal student loan borrowers will have interest rates reduced to 0 percent, and are being placed in administrative forbearance, which allows you to temporarily stop making your monthly loan payment. This provision is only for certain loan types. Please click here to read official guidance for students, borrowers and parents.
Encouraged philanthropic giving:
The CARES Act makes changes to charitable deductions and charitable contribution limits that are beneficial to individuals, businesses and organizations. Based on the current interpretation of the Act, we understand these changes to only apply to 2020. If you were considering a gift meaningful to you in 2021, you may want to talk with your tax adviser to see if making your gift in 2020 will put you in a better position.
Below are some specifics:
New deduction for cash contributions up to $300 in 2020:
Section 2204 of the CARES Act encourages donors who do not itemize their deductions, but rather use the new standard deduction, to also benefit from making a cash gift to a charitable organization. This is an “above-the-line” adjustment to income reducing taxable income. This adjustment is available for cash gifts and is limited to $300 per tax paying unit.
New deduction limits increase for cash gifts in 2020:
Section 2205 of the CARES Act allows individual taxpayers who itemize their deductions to suspend the normal limit on deductions for contributions. This provision suspends the limit ordinarily set at 50-60 percent of adjusted gross income (AGI) and increases it up to 100 percent. You cannot deduct more than 100 percent of your AGI, but you won’t lose the deduction for the excess amount – you can use it next year, as has always been the case. This provision is very favorable to donors who have been considering a generous cash contribution since the deductibility is not curbed by percentage limitations. This increase only applies to gifts to public charities, not to private family foundations or donor advised funds.
This section also increases the taxable income limit that applies to cash contributions made by corporations to charitable organizations from 10 percent to 25 percent for 2020. Qualified cash contributions in excess of the 25 percent limit can be carried forward for up to five years under the usual limits. This provision also increases the limitation on deductions for contributions of food inventory from 15 percent to 25 percent. In the case of charitable contributions by partnerships or S corporations, each partner or shareholder must separately elect to use the modified percentage limitations.
Required Minimum Distributions Suspended:
Section 2203 of the CARES Act, temporarily suspends the requirements for required minimum distributions (RMD) from IRAs for the 2020 tax year. Some of you are likely relieved that you do not need to draw from a retirement account at this time. Previously, the SECURE Act required RMD for those 72 or older. If you are 70½ or older, you can still make a gift from your IRA by transferring up to $100,000 and exclude that amount from taxable income (called a Qualified Charitable Distribution). Furthermore, since the gift does not count as income, it can reduce your annual income level, which may lower your Medicare premiums and decrease the amount of Social Security that is subject to tax. You benefit even if you do not itemize your deductions. You can also name a charitable organization, such as the University, as a beneficiary for the future.
There are some limitations to the benefits of CARES:
It is important to note that while you might reap other tax benefits by donating appreciated securities/stock, the CARES Act only applies to gifts of cash. Contributions to a supporting organization or to a sponsoring organization for the establishment of a new donor advised fund or to be added to an existing donor advised fund do not qualify for any of the above benefits. Charitable contributions carried over from a prior tax year (before 2020) are excluded from this temporary relief and are subject to previous limitations in the tax code.
How You Can Help
Marymount has not faced a challenge like COVID-19 before, but because our history has grounded us in service and compassion, we are quick to respond in times like these.
The generosity of our alumni, friends and family has never been more important as Marymount is called upon to assist our students and community.
If you are in a position to help, and would like to make a gift to support Marymount, please contact Bethanie Constant, Vice President for University Advancement, at firstname.lastname@example.org or (703) 908-7825. You can make a secure online gift here, or mail your check made out to Marymount University to: Marymount University, University Office of Advancement, Main House, 2807 N Glebe Road, Arlington, VA 22207.
This information is not intended as legal or tax advice. Please consult your attorney or tax adviser. In the eyes of the IRS tax code, Marymount University is a public charity, though it is a private institution in other respects.