IMPORTANT CHARITABLE CONTRIBUTION CHANGES – KNOW THE RULES
By David Kaplan, CPA
Everyone has a charitable organization that holds a special place in their hearts for which they are always willing to contribute to if they have the means. That is the true intent of a charitable contribution: giving to a not-for-profit organization while expecting nothing back in return. Even with the best intentions, most taxpayers are driven further by receiving the charitable contribution deduction when eligible to deduct actual itemized deductions. With the implementation of the Tax Cut and Jobs Act (TCJA) passed at the end of 2017, some additional considerations were added that became effective in 2018:
State and local contributions that provide a tax credit:
One of the changes the TCJA implemented was a limitation of up to $10,000 ($5,000 for married filing separate taxpayers) on state and local income and property taxes that could be deducted when claiming actual itemized deductions. Many states and localities were trying to find ways to help taxpayers to still receive these deductions. Many created programs where the taxpayer would make a charitable contribution to that state or locality, and in return, the taxpayer received a tax credit or deduction that would be applied towards the state or locality’s tax balance. Final regulations issued on June 11, 2019 provide that the tax credit received as a result of the contribution would have to reduce the amount claimed as a charitable contribution dollar for dollar unless the tax credit was 15% or less of the total contribution or was eligible for a state tax deduction on the individual’s state tax return. A safe harbor was provided for individuals indicating that the disallowed amount would be eligible to be included in the state and local taxes paid deduction, still subject to the overall limitation.
Increase in limitation threshold for most cash contributions:
One change that was beneficial to taxpayers is that the limit on most allowable cash contributions increased to 60% of the taxpayers adjusted gross income, up from 50%. Any taxpayer who is subject to the limitation does get to carryforward the excess charitable contribution up to 5 years.
Donations with athletic events seating rights not eligible for deduction:
Colleges and universities had benefited from adding seating rights as a perk of making a charitable contribution to the institution for some of their designated campaigns. It was a win-win: the institution received the contribution, and the taxpayer was assured rights to get highly coveted seats at athletic events while receiving a charitable contribution deduction for 80% of the amount contributed. As a result of the TCJA, if a seating right is attached to the contribution, the full amount of the contribution is no longer eligible for any charitable contribution deduction, and the institution is required to disclose this on its contribution letters issued to donors.
These provisions, combined with the increase in the standard deduction, have taxpayers trying to figure out how to maximize the tax benefit on their charitable contributions. Make sure to contact your tax advisor and discuss strategies that will match your charitable giving intentions and maximize your deductions.