Tax Law and News State and Local Tax Credits for Charitable Donations Read the Article Open Share Drawer Share this:Click to share on Twitter (Opens in new window)Click to share on Facebook (Opens in new window)Click to share on LinkedIn (Opens in new window) Written by Gary Muench, CPA Modified Nov 8, 2018 1 min read One change in the Tax Cuts and Jobs Act is the limitation of state and local tax (SALT) deductions to $10,000. For individuals in certain localities, there’s a chance that some of the SALT they pay will not be deductible. Certain high-tax states reacted with legislation that would have effectively made state taxes a charitable donation. For instance, a taxpayer could make a donation to the state and receive a tax credit in exchange. The IRS responded by issuing proposed regulations on Aug. 23, 2018, which effectively nullified any such action taken by the states. These proposed regulations would require that the charitable deduction be reduced by any state tax credit granted as a result of a donation. For example, if a state granted a 90 percent tax credit on contributions to the state, then only 10 percent of the donation would be deductible; a 100 percent credit would negate any charitable deduction. There is an exception to this proposed rule. If the tax credit is 15 percent or less of the donation, the taxpayer would not be required to reduce their deduction. However, a 15 percent credit would probably not be enough incentive for the majority of taxpayers to make a state donation. While the discussion above specifically addresses a donation to the state, the proposed regulations were broadly written to include a donation to any entity where a state tax credit is expected in excess of 15 percent of the donation. Previous Post Net Operating Losses: Impact of the Tax Cuts and Jobs… Next Post Tax Reform Makes Changes to the Meals and Entertainment Deduction Written by Gary Muench, CPA Gary Muench, CPA, has worked at Intuit® developing ProSeries® for 13 years. He has over 30 years of individual and business tax experience. More from Gary Muench, CPA Comments are closed. Browse Related Articles Tax Law and News Treasury, IRS Issue Proposed Regulations on Charitable … Tax Law and News How Tax Reform Affects the State and Local Tax (SALT) D… Tax Law and News IRS Explains Tax Treatment of State and Local Tax (SALT… Tax Law and News State Conformity to Federal Section 965 Transition Tax Tax Law and News How Will Tax Reform Affect States With High Taxes? Tax Law and News Tax Reform 2017 Bill Finalized: Here’s What Goes to V… Tax Law and News Tax Reform 101 for Families Tax Law and News Tax Law Changes for TY 2016 – Part 1 Tax Law and News Tax Reform and Beyond: Tax Law Changes for Tax Year 201… Tax Law and News Tracking Charitable Contributions for Your Clients