Blue Book: Increased Charitable Contributions by Individuals

The Blue Book issued by the Joint Committee on Taxation (JCT) includes a technical correction for charitable contributions by individuals to public charities. The fix would clarify how the temporary increase in the limit for charitable contributions would be applied.

The JCT’s explanation of the Tax Cuts and Jobs Act (the “Blue Book”) identifies more than 70 technical corrections needed to fix drafting errors in the Act. The Blue Book also contains roughly 10 corrections for TCJA changes to depreciation.

60% Contribution Base

The TCJA temporarily increases the charitable contribution percentage limit for an individual from 50% to 60% of his or her contribution base for cash contributions to:

  • public charities,
  • certain private foundations, and
  • certain governmental units.

The increase applies to tax years beginning in 2018 through 2025.

Cash contributions that qualify for the 60% limit are not taken into account in determining contributions that are allowed under the 50% limit for noncash contributions. Each tax year that any excess of the 60% cash contribution is carried over, the aggregate contribution limitation allowed to the taxpayer is reduced by the total contributions allowed under the 60% limit. The limit cannot be reduced below zero.

Order of Contributions

The Blue Book notes that the temporary 60% limit for cash contributions is intended to be applied after the 50% limit for noncash contributions. However, it is possible to interpret these rules as the 50% limit for noncash contributions applying after the amount of cash contributions allowed under the 60% limit. Thus, a technical correction may be needed to clarify the coordination of the different limits.

Under the technical correction, the 60% limit for cash contributions is reduced by the amount of noncash contributions. Thus, the 50% limit for noncash contributions is not reduced by the amount of cash contributions allowed under the 60% limit. It would also make a related change to the 30% limit for certain charitable contributions to organizations that are not public charities.

Example: Non-Cash Contributions Before Cash Contributions

An individual with a contribution base of $100,000 for tax year 2018 makes two contributions to public charities: unappreciated property with a fair market value of $50,000 and $10,000 in cash. The individual makes no other charitable contributions in 2018 and has no charitable contribution carryforwards from a prior year.

The cash contribution limit is determined after accounting for noncash contributions. Thus, the $50,000 contribution of unappreciated property is accounted for first, using up the individual’s entire 50- percent contribution limit (50 percent of the individual’s $100,000 contribution base). This leaves $10,000 in allowable cash contributions under the 60% limit ($60,000 (60 percent of $100,000) reduced by the $50,000 in noncash contributions allowed.

The Blue Book and Other Information on Corrections

Taxpayers interested in more information may want to review the following documents:

By John Buchanan, JD, LLM

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CCHTaxGroup

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