Perhaps you have heard of the deductibility limitation on state and local taxes (known as the SALT) imposed by the Tax Cuts and Jobs Act. In summary, the maximum deduction for state, local, and property taxes you can deduct is $10,000 (couple) or $5,000 (single). If your SALT taxes are more than that, they will not be deductible.

A number of the high-tax states developed strategies to fight back, in some instances by letting people make charitable contributions to their school districts in lieu of property taxes. They would then receive a credit for the charitable donation on their state tax return. The IRS pledged to fight these measures, and now it has come out with regulations which fulfill that promise.

The IRS rulings say that the credits against state taxation are a quid pro quo received for the charitable contribution, which negates the deductibility of the charitable contribution. This is not a new interpretation for the IRS. Typically, under existing guidelines, the value of anything you receive in return for a charitable donation needs to be subtracted from the donation. The IRS only clarified that this also applied to state tax credits.