Shared as information:
Issue Number: IR-2019-109Inside This Issue
------------------------------
*Final Regulations on Charitable Contributions and State and Local Tax
Credits*
WASHINGTON — The U.S. Department of the Treasury and the Internal Revenue
Service today issued final regulations that require taxpayers to reduce
their charitable contribution deductions by the amount of any state or
local tax credits they receive or expect to receive in return. In a notice
also issued today, the IRS stated that taxpayers may treat payments they
make in exchange for these credits as state or local tax payments. This
allows some taxpayers to deduct certain of the payments as taxes.
Treasury Decision 9864
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available today in the Federal Register, finalizes proposed regulations
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published
Aug. 27, 2018, that were designed to clarify the relationship between state
and local tax credits and the federal tax rules for charitable contribution
deductions. The Treasury Department and the IRS issued the Treasury
Decision after carefully reviewing the more than 7,700 written comments
received during the comment period and 25 comments made at the November
2018 public hearing. About 70 percent of the comments recommended adopting
the proposed regulations without change.
The final regulations, which apply to contributions made after Aug. 27,
2018, and are effective on Aug. 12, 2019, largely adopt the rules in the
proposed regulations. Under the final regulations, a taxpayer making
payments to an entity eligible to receive tax-deductible contributions must
reduce the federal charitable contribution deduction by the amount of any
state or local tax credit that the taxpayer receives or expects to receive
in return. The regulations also apply to payments made by trusts or
decedents’ estates in determining the amount of their charitable
contribution deductions.
For example, if a state grants a 70 percent state tax credit pursuant to a
state tax credit program, and an itemizing taxpayer contributes $1,000
pursuant to that program, the taxpayer receives a $700 state tax credit. A
taxpayer who itemizes deductions must reduce the $1,000 federal charitable
contribution deduction by the $700 state tax credit, leaving a federal
charitable contribution deduction of $300.
The regulations provide exceptions for dollar-for-dollar state tax
deductions and for tax credits of no more than 15 percent of the amount
transferred. Thus, a taxpayer who receives a state tax deduction of $1,000
for a contribution of $1,000 is not required to reduce the federal
charitable contribution deduction to take into account the state tax
deduction; and a taxpayer who makes a $1,000 contribution is not required
to reduce the $1,000 federal charitable contribution deduction if the state
or local tax credit received or expected to be received is no more than
$150.
The IRS also posted a notice (Notice 2019-12
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providing a safe harbor that allows an individual who itemizes deductions
to treat, in certain circumstances, payments that are or will be disallowed
as charitable contribution deductions under the final regulations as state
or local taxes for federal income tax purposes. Eligible taxpayers can use
the safe harbor to determine their state and local tax (SALT) deduction on
their tax-year 2018 return. Those who have already filed may be able to
claim a greater SALT deduction by filing an amended return, Form 1040X
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if they have not already claimed the $10,000 maximum amount ($5,000 if
married filing separately).
The Treasury Department and the IRS continue to consider issuing future
guidance on a number of issues raised by commenters.
Updates on the implementation of the Tax Cuts and Jobs Act (TCJA) can be
found on the Tax Reform page
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of
IRS.gov.
John H. Taylor
Principal, John H. Taylor Consulting
2604 Sevier St.
Durham, NC 27705
johntaylorconsulting@gmail.com
919.816.5903 (cell/text)
Serving the Advancement Community Since 1987