By now, taxpayers with high state tax burdens are all too well aware of the impact the federal Tax Cuts and Jobs Act of 2017 has had in limiting state and local tax deductions to $10,000. We also know states have been proactive in fighting back. For example, New York State has gone as far as enacting legislation enabling local governments and school districts to establish charitable funds so that residents can make “contributions” and receive a tax credit towards the local tax obligation. In other words, through the alchemic magic of the tax law, converting now-capped SALT deductions to much less restricted charitable contributions.
New York State has demonstrated their commitment to make this work and has even established a web link to provide local governments with guidance in setting up the charitable funds. Yet the IRS has been warning of their intention to issue regulations that are likely to undermine the plan.