The Internal Revenue Service and the U.S. Department of Treasury have finalized regulations regarding charitable contributions and state and local tax credits initially proposed last August.
The new rules are aimed at stopping taxpayers from federally deducting donations made to charitable funds run by state or local governments. Several states, including New York, created such funds to work around a cap on State and Local Tax (SALT) deductions.
The $10,000 cap was put in place by Congress as part of the Tax Cuts and Jobs Act of 2017. The Treasury Department and IRS said they delivered the decisions after reviewing more than 7,700 written comments and 25 comments made during a public hearing.
“About 70 percent of the comments recommended adopting the proposed regulations without change,” the release said.
According to the final ruling, if a taxpayer does not receive a dollar-for-dollar credit on the contribution made to a state charitable fund, he or she can deduct the difference.
“For example, if a state grants a 70 percent state tax credit pursuant to a state tax credit program, and an itemizing taxpayer contributes $1,000 pursuant to that program, the taxpayer receives a $700 state tax credit. A taxpayer who itemizes deductions must reduce the $1,000 federal charitable contribution deduction by the $700 state tax credit, leaving a federal charitable contribution deduction of $300,” the release said.
New York State offers an 85 percent credit for contributions made to its Charitable Gift Trust Fund and a 95 percent credit for local government fund contributions. In May, the New York State Division of Budget said taxpayers had contributed $93 million to the state fund – with the money steered toward health care and education.
“By finalizing this rule, the Federal government is continuing its politically motivated economic assault on New York – an assault that started with President Trump and his allies in Congress and is now being advanced by the IRS,,” Gov. Andrew Cuomo, D-NY, said in a statement. “The IRS should not be used as a political weapon. The regulations promulgated today lack any basis in the law, upend decades of precedent without authorization from Congress, and target programs established by New York and other states to incentivize charitable contributions.”
Cuomo said the state already sends $36 billion more to the federal government than its taxpayers annually receive back and the SALT cap has added an additional $15 billion that will be redistributed to Republican states. He said the administration will pursue all options, including legal action, to fight the decision.