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IRS Rules Weaken Charitable Deduction for Donors Receiving State Tax Credits for Giving

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Aug 29, 2018

On August 23, the IRS released proposed regulations that require donors who itemize to reduce their charitable deduction by the amount of any state or local tax credit they receive for making cash or non-cash contributions after August 27, 2018. The IRS is accepting comments on this proposed regulation through October 11, 2018.

Read the regulations

If the IRS adopts the regulation as written, this appears to affect Colorado donors claiming tax credits like the Child Care Contribution Credit, the credit for contributions to Enterprise Zone Projects, and others. The regulation does not apply to state or local tax deductions or tax credits of 15 percent or less of the value of the donation.

The proposed regulations are intended to address new laws in several other states to work around the new $10,000 limit on the federal itemized deduction for state and local taxes (SALT). Those laws would essentially allow taxpayers to make certain state and local tax payments in the form of charitable contributions to nonprofits formed by state and local governments. As a result, those taxpayers would be able to deduct state and local taxes in excess of $10,000 via the charitable deduction.

The regulations propose treating the value of tax credits like other benefits donors may receive when making a gift. For example, subtracting the value of the cost of a meal at a charity gala from the tax-deductible contribution for buying a ticket.

Visit our policy update for more information on this issue and sample language you can use to make a comment. 

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