EDIT: Correction made to the effective date.

In the past you may have given to various Arizona charitable organizations that allowed for a $1-for-$1 state tax credit on your tax return. These included donations to Qualifying Charitable Organizations, Qualifying Foster Care Charitable Organizations, Public Schools, the Arizona Military Family Relief Fund, and Private School Tuition Organizations (STOs).  Changes are coming related to the rules of how this works, and there is a very narrow window (8/24/18-8/27/18) if you wanted to take advantage of making the 2018 tax credit donations before the new rules are made effective.

The IRS issued proposed regulations August 23, 2018 which changes the tax deductibility of tax credit programs such as these Arizona tax credits. (you can read the full text here: https://s3.amazonaws.com/public-inspection.federalregister.gov/2018-18377.pdf)

The proposed regulations have a proposed effective date for contributions made after 8/27/18. In simple terms, the proposed regulations stipulate that there will no longer be a federal charitable donation deduction allowed to the extent that the donation is also giving rise to an Arizona tax credit.

Based on the information available to us today, you have today, tomorrow, Sunday, and Monday 8/27/18, to do the Arizona state tax credit donations “the old way” and still get the federal tax deduction as a charitable donation deduction on your 2018 tax return (assuming you itemize for 2018) and take the Arizona tax credit.  If these proposed regulations are approved and implemented as currently written, effective 8/28/18, you will still get the state tax credit benefit but no deduction for the federal charitable donation.

If you will be donating during this very slim window to various tax credit organizations, we recommend charging the donations to a credit card because (in general) an email will be automatically sent to you from the organization with documentation of the donation date (please keep in mind that checks won’t clear until after the proposed implementation date which could cause confusion/improper treatment come tax prep time in 2019).  When you do receive your donation receipt letter from the organization, please ensure that the date of the donation is properly reflected on your receipt. If not, please contact them to correct the date and re-issue the donation receipt letter.

The net takeaway based on the information available to us today seems to be that if you are planning to make these tax credit donations before the end of the year, you will want to consider doing so while we are still under the “old” law (through 8/27/18) for deductibility/maximum benefit reasons.  As a reminder, it is OK to charge these donations on your credit cards – the donation date is what matters for deductibility reasons, not when the credit card is paid.

• List of QCOs (max of $800 MFJ/$400 Single or HOH) https://azdor.gov/sites/default/files/media/CREDITS_2018_qco.pdf
• List of QFCOs (max of $1,000 MFJ/$500 Single or HOH) https://azdor.gov/sites/default/files/media/CREDITS_2018_qfco.pdf
• List of STOs (max of $2,213 MFJ/$1,107 Single or HOH) https://azdor.gov/sites/default/files/media/REPORTS_2018_sto-i-list.pdf
• Any Arizona public school K-12, including charter schools (max of $400 MFJ/$200 Single or HoH)
• Arizona Military and Family relief Fund  (max of $400 MFJ/$200 Single or HOH) https://dvs.az.gov/mfrf

Disclaimer: these are proposed regulations. They have not yet been implemented. We do not know when they will be made effective. The regulations as currently written are subject to change, including the effective date. Please consult your tax advisor with regard to how these changes impact you personally if you have questions.

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