The Department of the Treasury has issued a proposed rule addressing the handling of charitable contributions, as well as tax credits.
Officials said the proposed rule would prevent charitable contributions from being used to circumvent the new limitation on state and local tax deductions.
“Congress limited the deduction for state and local taxes that predominantly benefited high-income earners to help pay for major tax cuts for American families,” Treasury Secretary Steven T. Mnuchin, said. “The proposed rule will uphold that limitation by preventing attempts to convert tax payments into charitable contributions. We appreciate the value of state tax credit programs, particularly school choice initiatives, and we believe the proposed rule will have no impact on federal tax benefits for donations to school choice programs for about 99 percent of taxpayers compared to prior law.”
Officials said the proposal is concise, noting when a taxpayer receives a valuable benefit in return for a donation to charity, the taxpayer can deduct only the net value of the gift as a charitable contribution.
The rule applies the quid pro quo principle to state tax benefits provided to a donor in return for contributions, according to the legislation, which notes the guidelines will apply to both new and existing tax credit programs.