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Abstract: 

The IRS has issued final regulations under IRC §170 regarding whether a taxpayer may claim a charitable contribution deduction when he receives or expects to receive a corresponding state or local tax credit. The impetus for the new rules is found in new IRC §164(b)(6) (added by the Tax Cuts and Jobs Act ), which limits an individual’s deduction for state and local taxes paid to $10,000 ($5,000 in the case of a married individual filing a separate return) for tax years 2018-2025. As a result of the limitation, individuals may not be able to claim a federal income tax deduction for the entire amount of property tax and income or sales tax they pay. This article examines the implications of these final regulations and analyzes the likely effect of “workarounds” some advisors have recommended. Conclusion: taxpayers should carefully consider whether any state or local tax credit they obtain as a result of a charitable contribution is more valuable than a charitable contribution deduction for federal income tax purposes and, if it is not, consider forgoing the credit to reduce federal taxable income.

Keywords: IRC §170(c); Notice 2019-12

Affiliations:  1: Family Foundation Advisor.