PROPOSED IRS REGULATIONS WOULD DENY FULL FEDERAL INCOME TAX DEDUCTION FOR STATE TAX CREDIT DONATIONS
This is an outgrowth of the uproar over the limit placed on the deductibility of state and local taxes by the Tax Cuts and Jobs Act. I wrote about it here and here.
As a result of the limit on deductibility of state and local taxes, some states adopted changes to their tax codes to treat state and local tax payments as charitable contributions, in order to preserve the deductibility of those payments on taxpayers’ federal income tax returns.
The IRS has now responded by proposing regulations that will limit or disallow entirely deductions for payments for which the taxpayer receives a state or local tax credit.
The IRS news release is here.
Of course, this change isn’t going to affect just the deductibility of stat and local tax payments. It’s also going to affect state tax credit donations to actual charities. In other words, it will mean that my tax credit donation to the food bank won’t be a deductible donation on my federal tax return anymore.
Thanks a lot, high tax states (they’re the ones who were so insistent on preserving federal deductibility for the high taxes their residents pay).
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