Charitable Contributions Made for SALT Credits Limited
The IRS has issued final regulations preventing taxpayers from getting around the state and local tax (SALT) deduction limits by way of charitable contributions.
The new rules require taxpayers to reduce the amount of any charitable contribution deduction by the amount of any SALT tax credit they receive or expect 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% 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.
Additionally, a safe harbor has been added for certain individuals to treat any disallowed charitable contribution deduction under this rule as a deductible payment of taxes under Code Sec. 164.
The final regulations and the safe harbor apply to charitable contribution payments made after August 27, 2018.