Safe harbor for certain charitable contributions made in exchange for a state or local tax credit - Form 1041

 

If you made a charitable contribution after August 27, 2018, in exchange for a state or local tax credit and your charitable contribution deduction must be reduced as a result of receiving or expecting to receive the tax credit, you may qualify for a safe harbor that allows you to treat some or all of the disallowed charitable contribution as a payment of state and local taxes.

The safe harbor applies if you meet the following conditions.

  1. You made a cash contribution to an entity described in Internal Revenue Code section 170(c).
  2. In return for the cash contribution, you received a state or local tax credit.
  3. You must reduce your charitable contribution deduction by the amount of the state or local tax credit you receive.

If you meet these conditions, and to the extent you apply the state or local tax credit to this or a prior year's state or local tax liability, you may include this amount on line 11. To the extent you apply a portion of the credit to offset your state or local tax liability in a subsequent year (as permitted by law), you may treat this amount as state or local tax paid in the year the credit is applied.

For more information about this safe harbor and examples, see Notice 2019-12 and TD 9864 (PDF).