By Kenneth H. Bridges, CPA, PFS December 2019
Prior to August 28, 2018, Georgia residents (and residents of other states with similar programs) could potentially avoid the $10,000 limitation on the deduction for state and local taxes imposed by the Tax Cuts and Jobs Act, and enjoy a net profit, by making a donation to an organization like Georgia HEART (benefitting rural hospitals), Georgia GOAL (private school scholarships), or Georgia Innovation Fund Foundation (benefitting public schools). This was because Georgia provides a dollar-for-dollar reduction in its state tax for such donations, and you could also claim a Federal charitable contributions deduction.
In August 2018, the IRS issued proposed regulations (finalized in June 2019) which provide that (for donations made after August 27, 2018) if you receive a state tax credit for a donation, then you cannot claim a Federal charitable contributions deduction for such. This essentially shut down the SALT limitation workaround and the opportunity to make a net profit from such donations.
However, to the extent a flow-through entity (e.g. partnership, LLC or S-corp) has a business reason for making a donation to such an organization, it may be possible for the flow-through entity to claim a business deduction for the donation, while passing the related Georgia tax credit through to the owners. Regulations issued by the Georgia DOR earlier this year essentially bless this approach.
Kenneth H. Bridges, CPA, PFS is a partner with Bridges & Dunn-Rankin, LLP, an Atlanta-based CPA firm.
This article is presented for educational and informational purposes only, and is not intended to constitute legal, tax or accounting advice. The article provides only a very general summary of complex rules. For advice on how these rules may apply to your specific situation, contact a professional tax advisor.