IRS Issues Final Regulations on State/Local Tax Credits and Charitable Contributions

Thursday, June 13, 2019

On June 11, 2019, the U.S. Treasury Department and Internal Revenue Service (IRS) released the final regulations regarding the availability of charitable contribution deductions under section 170 when a taxpayer receives or anticipates receiving a matching state or local tax credit. The 2017 Tax Cuts and Jobs Act (TCJA) limited the itemized deductions for state and local taxes (SALT) to $10,000. Some states where the average amounts claimed by individuals were higher than the cap proposed legislation that exercised their authority to enable taxpayers to make charitable contributions to an established state fund in order to earn a credit. The goal was to essentially transform a non-deductible payment into a charitable contribution since those were not capped under the new federal tax law.

However, the final regulations officially reject such efforts by requiring that taxpayers subtract the value of any state or local tax credit they receive or expect to receive from their federal charitable contribution deduction. But the final regulations provide a safe harbor for state tax deductions and tax credits that amount to no more than 15 percent of the donation. To read the final regulations,click here.