Georgia Taxpayers that are Limited on State and Local Tax Itemized Deductions Have Options

By Tim Clancy

Starting in 2018, itemized deductions taken on an individual’s federal tax return for both income and property taxes will be limited to a total of $10,000. Taxpayers owning property in high property taxing jurisdictions and/or taxpayers with high wages may find their itemized deductions now limited. Therefore, they will not receive the benefit of deductions previously received on their federal income tax return.  Consequently, taxpayers may be searching for options that will allow them to retain some, or all of the tax benefits previously received from the remittance of these taxes. Georgia taxpayers who are philanthropic may be able to help the Georgia community and receive tax credits for their charitable contributions.  As a result, they may be able to minimize the impact of the state and local tax deduction limitations on their federal tax return.
 
Currently, the state of Georgia provides taxpayers with income tax credits in exchange for contributions to either 1) the Georgia HEART under the Rural Hospital Tax Credit program or 2) a qualified Student Scholarship Organization under the Qualified Education Credit program.  Both programs were expanded with the passage of Georgia HB 769 and HB 217 and are potentially more valuable to both individual and corporate taxpayers than in prior years.  Both bills have been sent to Governor Nathan Deal and await his signature.
 
Qualified Rural Hospital Organization Credit.
 
Background
 
The Georgia Rural Hospital Tax Credit program, which came into effect January 1, 2017, provides Georgia income tax credits to individual and corporate taxpayers for contributions to qualified rural hospital organizations (“RHO”) in the state. Taxpayers who participate in the program receive both a charitable contribution deduction on their federal tax return and a state income tax credit on their Georgia income tax return.
 
The tax credit is capped for 2017 and 2018 at $60 million and pre-approval is required to be obtained from the Georgia Department of Revenue in order to participate and claim the credit.  The taxpayer is required to make the contribution within 60 days of approval.  For the 2017 tax year, the credit was limited to 90 percent of the amount contributed or $5,000 per tax year for single taxpayers and $10,000 for married filing joint taxpayers, whichever was less.  C corporations and trusts are also qualified for the credit with a limitation of the lesser of 90 percent of the contribution or 75 percent of its Georgia tax liability.
 
Georgia House Bill 769
 
On the last day of the 2017-2018 legislative session, the Georgia Senate approved the House-approved version of HB 769 which will enhance the Georgia HEART rural hospital organization tax credit to include;
  • Georgia income tax credit for contributions to RHO’s will increase from 90% to 100%
  • Eligible contributors now specifically include owners of pass-through entities
  • After June 30th of each year, there will be no maximum credit limit on non-corporate contributions
  • Corporations will be limited to 75% of the corporation’s income tax or the amount expended whichever is less
  • Georgia HEART tax credit is extended through 2021
 
Taxpayers who contributed to the RHO through June 30, 2018 are still limited to a 90% credit. However, it is also possible that the DOR may grant an additional $1,111 of credit to married taxpayers who in contemplation of a 90% credit, contributed $11,111 to a RHO for a maximum $10,000 credit.  We will continue to monitor any further announcements or guidance provided by the Department of Revenue
 
As of the date of the release, rural hospital credits were still available.  Until guidance is provided, taxpayers may want to limit their RHO contributions to $10,000.  On or very early after July 1, 2018 taxpayers may want to apply for additional tax credits since they will no longer be limited.  Georgia HEART will allow taxpayers to submit their applications for the credit prior to Monday July 2, 2018.  Georgia HEART will submit all applications received to the DOR on Monday July 2.
 
Georgia Education Expense credit
 
Background
 
Georgia’s Qualified Education Expense Tax Credit was enacted in 2008 to help prior public-school students access to schools that best fit their needs. Both individual and corporate taxpayers are offered Georgia income tax credits in exchange for charitable contributions to Student Scholarship Organizations (“SSO”).   
 
The tax credit has been capped through 2018 at $58M and pre-approval is required to be obtained from the Georgia Department of Revenue in order to participate and claim the credit.  The taxpayer is required to make the contribution within 60 days of approval.  For the 2017 tax year the credit was limited to lesser of the individuals tax liability or
  • $1,000 single taxpayers
  • $2,500 married filing joint return
  • $1,250 married filing separate
  • $10,000 Individuals who are members of a limited liability company, shareholders of Subchapter S corporations or a partner in a partnership
 
Corporations and fiduciaries are allowed a credit not to exceed the lesser of the actual amount expended or 75 percent of the corporation’s or fiduciary’s income tax liability for the tax year.  The applications received have historically exceeded the established cap.  For 2018, all applications received were prorated down to 49.49% of the amount applied for.
 
 Georgia House Bill 217
 
Also on the last day of the 2017-2018 legislative session, House Bill 217 was approved by both the House and Senate which will allows taxpayers more opportunity to obtain the credit.  Under the Bill, the aggregate cap will be increased from $58 million to $100 million for the next ten years beginning on January 1, 2019 and ending on December 31, 2028.  After the ten-year period, the cap will be reduced back to $58 unless future action is taken by the Georgia Legislature. In addition, Georgia state auditors are to evaluate the financial and economic impact to Georgia after a period of five years.
 
Perspective
 
Prior to the 2018 tax year, taxpayers who found themselves subject to the alternative minimum tax (AMT) which always disallowed the deductions for state income and property taxes for federal tax purposes received a larger benefit for their contributions in obtaining either the Rural Hospital Credit or the Qualified Education Expense Credit.  While AMT has largely been limited to a much smaller number of taxpayers, the limitation of the state and local tax deduction for federal tax purposes will impact many taxpayers who previously itemized deductions on their federal return. Taxpayers who continue to itemize and whose state and local tax deduction is limited, will retain an important deduction and reap a monetary benefit by contributing to either program.  Taxpayers should consult their tax advisor to discuss the overall tax impacts that may result from the participation in either tax credit programs
 
For more information please contact either:
 
Tim Clancy
State and Local Tax
tclancy@windhambrannon.com
678.510.2804
 
Barbara Coats
High Net Worth Tax
bcoats@windhambrannon.com
678.510.2724