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Treasury Department tax experts are skeptical about states allowing taxpayers to make charitable contributions to circumvent a new cap on deductions for state and local taxes. The comments from Thomas West, the tax legislative counsel serve as a warning to lawmakers in New York, New Jersey, and California who are considering encouraging such donations with new state tax breaks. The department is monitoring what states are doing and may issue a more formal notice if warranted to protect federal tax revenues. Treasury Secretary Steven Munchin also previously called such ideas ridiculous. Lawmakers in high tax states are considering ways of responding to the new tax law which limits the individual deduction for state and local taxes to $10,000.
One option being considered in some states would take advantage of the fact that charitable contributions remain deductible against federal income taxes. States could set up funds and then give taxpayers credit against their state and local or property taxes for donations.