Today the IRS issued proposed regulations that could affect your donors' ability to take a federal deduction for future contributions to your STO.
Under the proposed regulations, a taxpayer who makes payments to a charity must reduce their federal charitable deduction by the amount of any state or local tax credit the taxpayer receives or expects to receive.
For example, if a state grants a 70 percent state tax credit and the taxpayer pays $1,000 to an eligible entity, the taxpayer receives a $700 state tax credit. The taxpayer must reduce the $1,000 contribution by the $700 state tax credit, leaving an allowable contribution deduction of $300 on the taxpayer’s federal income tax return. The change would apply to both existing credit programs and new ones.
The proposed regulations provide exceptions for tax credits of no more than 15 percent of the payment amount or of the fair market value of the property transferred. A taxpayer who makes a $1,000 contribution to an eligible entity is not required to reduce the $1,000 deduction on the taxpayer’s federal income tax return if the state or local tax credit received or expected to be received is no more than $150.
Please note that these changes are proposed to apply to contributions made after August 27, 2018. Therefore, although the proposed regulations are not final, you may want to consider informing your donors of the proposed change so they can determine whether it makes sense for them to make their 2018 contribution by Monday, August 27th.
Keep in mind that these regulations are not final and are subject to change. Treasury and IRS welcome public comments on these proposed regulations. To view the Regulation or for details on submitting comments, see the Proposed Reg 2018-18377. We will keep you informed of any changes in this area as we become aware of them. Please let us know if you have any questions or concerns in regards to the limitation.
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