Proposed rules would curb avoidance of SALT deduction limit
 

Proposed rules would curb avoidance of SALT deduction limit

nder proposed regulations issued by the IRS on Thursday, transfers to a state agency or charitable organization in lieu of paying state and local taxes would be deductible as a charitable contribution only to the extent that the taxpayer making the donation did not receive a quid pro quo (REG-112176-18). Contributions that result in a state or local tax credit in return for the contribution would not be deductible for federal tax purposes to the extent of the credit; however, contributions that result in a state or local tax deduction may be deductible for federal tax purposes.

A number of states have enacted or are considering enacting programs that allow residents to make contributions to state agencies or charitable organizations in exchange for state and local tax credits. These programs are designed to allow individual taxpayers to claim charitable contribution deductions that are not subject to the new $10,000 limit on the deductibility of state and local taxes under P.L. 115-97, the law known as the Tax Cuts and Jobs Act (TCJA). In New York, for example, local governments and school districts can create charitable funds and offer donors a property tax credit. New York has also created a state charitable gifts trust fund, which permits taxpayers to make contributions for health care or education in return for a state tax credit (donors would also, presumably, attempt to take a federal charitable contribution deduction) (2018 N.Y. S.B. 7509, ch. 59). In New Jersey, taxpayers can make donations to municipal or school charitable funds and receive property tax credits (2018 N.J. S.B. 1893).. Read more on the Journal of Accountancy.