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2018-14: IRS puts a halt to states’ SALT limitation workaround


The IRS has issued proposed regulations in response to states enacting or contemplating state tax credit programs to get around the $10,000 state and local tax limitation. (IR-2018-172)

The proposed regulations label such transactions as a nondeductible quid pro quo and require taxpayers to decrease the amount of their charitable contribution deduction by the amount of the state credit claimed, unless the credit is de minimis (15% or less than the amount contributed).

The limitation is effective for contributions made after August 27, 2018, and applies to state tax credit programs that were enacted even prior to the TCJA. For California taxpayers, this will affect the proposed credits which have been working their way through the legislature and the previously enacted College Access Tax Credit.