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California Responds to SALT Deduction Limit – Tax & Accounting Blog

A bill introduced in the California Senate responds to the new limit on the federal deduction for state and local taxes (see P.L. 115-97, Sec. 11042).  The bill would effectively permit taxpayers make charitable contributions instead of pay state and local taxes. Federal income tax law allows a deduction for charitable contributions.

California Excellence Fund Tax Credit

Under the bill, California would allow tax credits for contributions made to the California Excellence Fund by both:

  • corporations; and
  • individuals.

All amounts in the fund would be used for “public purposes” as required by federal tax law for charitable contributions and gifts. The credit would be nonrefundable, but unused credits would be carried over for up to six years.

Currently, there is no California Excellence Fund. Further, the bill does not include provisions that would create the fund. However, the bill expects such a fund to be created within the General Fund.

Practical Effect

The credit would reduce a taxpayer’s state and local income taxes. By doing so, it would also lower the amount by which those taxes exceed the new $10,000 limit on the federal deduction for state and local taxes. Further, unless disallowed by the IRS or future federal law, a contribution would be deductible on a taxpayer’s federal income tax returns.

S.B. 22, as introduced in the California Senate on January 3, 2018

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Author: CCHTaxGroup

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