On December 22, 2017 President Trump signed into law the Tax Cuts and Jobs Act. For taxpayers in high tax jurisdictions like NY, CT & NJ, the new law greatly impacts the ability to deduct state and local taxes by limiting the deduction to $10K (Real estate and Income taxes combined). Recently, many states have been creating new laws that combat this limitation by allowing its taxpayers to make a contribution into a state run charitable fund. The purpose of this contribution is to allow for a credit in the subsequent year against the taxpayer’s real estate taxes.
A taxpayer with $10K in real estate taxes can contribute $10K to the fund, which allows them to take a charitable contribution as well as a $10K deduction for state income taxes.
On May 23, 2018, the IRS issued Notice 2018-54 stating that it intends to propose new regulations to address the contributions to a fund controlled by the state and is being utilized as a workaround to the $10K state and local deduction limitation. The proposed regulations will reference the “substance-over-form” principal, whereby the economics of the transaction are examined to determine the true treatment of the contribution.