Charitable Contributions and State or Local Tax Credits or Deductions

There are new rules for taxpayers who made charitable contributions to specified entities in return for a state or local tax credit or deduction.

If you made a charitable contribution by cash or property, after August 27, 2018, to or for the use of a specified entity and received or expected to receive a state or local tax credit, you must reduce your charitable contribution deduction on Schedule A (Form 1040) by the amount of credit you received or expected to receive in return. Where you receive or expect to receive a state or local tax credit, there is an exception to reducing your charitable contribution deduction if the credit is no more than 15% of the amount transferred.

If you made a charitable contribution by cash or property, after August 27, 2018, to or for the use of a specified entity and received or expected to receive a state or local tax deduction that was more than your contribution or fair market value of your property, you must reduce your charitable contribution deduction on Schedule A (Form 1040) by the excess amount you received or expected to receive in return.

The reduction of a charitable contribution deduction, described above, also applies to a trust or decedent’s estate that files Form 1041.

If your charitable contribution deduction must be reduced, you may qualify for safe harbor rules that allow payments you made in exchange for a state or local tax credit to be treated as state or local tax payments and be deducted on Schedule A (Form 1040) as state and local taxes. If you already filed your 2018 Form 1040 but did not claim the $10,000 maximum SALT deduction ($5,000 if married filing separately), you may be able to claim a greater SALT deduction by filing an amended return, Form 1040-X.

See Treasury press release and IR-2019-109 for more information.