The 2017 tax law Tax Cut and Jobs Act (TCJA) allows individual tax payers a detailed deduction for state and local income, real property and personal property taxes. For tax years from 2018 through 2025, the TCJA under its sub section, disallows individual tax payers from subtracting more than $10,000 in state and local taxes. Instantly after this enactment, tax experts, while planning to assist their clients, advised their clients to prepay taxes before end of 2017 so as to receive.
In 2018, high income tax states began formulating long term solutions around the $10,000 state and local tax deduction limitation. To allow the state to collect its full tax revenue and allow tax payers to reduce their federal tax liability many states created larger charitable contribution deduction.
S.B.227 establishes a California Excellence fund and provides tax payers with a state tax credit for contributed amounts. However, IRS issued notice 2018-54 which proposes to apply a substance-over-form analysis to these payments, suggesting that they will not be treated as bona fide charitable contributions.
The California senate amended S.B.227 for close monitoring. The Revised bill allows tax payers to donate to new local educational institutions to benefit education, providing residents with an 85% tax credit in California for contributed amounts.
Although the benefit of this workaround would be limited for states, it most likely would shelter a large number of taxpayers whose deductions would otherwise be limited.
For more information and detailed analysis, please visit –
https://www.thetaxadviser.com/issues/2018/aug/workarounds-state-local-tax-deduction-limitation.html?utm_source=mnl:cpald&utm_medium=email&utm_campaign=13Aug2018