IRS Warns on State Charitable Deduction Schemes to Allow Property Taxes Deduction

The Tax Cuts and Jobs Act of 2017 limits the Code §164 deduction of individuals for state and local taxes to $10,000 per year ($5,000 for married individuals filing a separate return). Thus, many taxpayers in states with high state taxes have lost a federal income tax subsidy of their state and local taxes.Several states have adopted or are proposing arrangements to convert tax payments to deductible charitable deductions. These work by allowing taxpayers to make their tax payments to state-established or sanctioned charitable organizationS and then receive a credit against their state taxes for these payments. Voila – a state tax payment (subject to the $10,000 limit) is converted to a deductible charitable payment (not subject to the $10,000 limit).The IRS has issued Notice 2018-54 warning taxpayers of proposed regulations that will be coming out that will address these payments. The Notice does not explicitly provide that the above charitable deduction arrangement will…

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