Please Note: On August 23, 2018, Treasury released Proposed Regulations outlining the income tax treatment of contributions in exchange for state or local tax credits. We are currently reviewing these proposed regulations and will provide additional commentary soon. Based upon an initial review, these proposed regulations appear to disallow the federal deductibility of charitable contributions under the Rural Hospital Tax Credit Program.
On May 2, 2018, Governor Nathan Deal House Bill 769 (the “Bill”) into law. Among other measures, the Bill amplifies the Qualified Rural Hospital Organization Tax Credit Program (the “RHO Program”). Previously, the RHO Program allowed donors to receive a state income tax credit of up to 90 percent of the amount contributed to certain rural hospitals, not to exceed $5,000 for single filers and $10,000 for joint filers.
The Bill enhances the RHO Program by increasing the credit ratio from 90 percent to 100 percent and by eliminating the contribution limits after July 1st of each year. Both enhancements are effective July 1, 2018.
These changes to the RHO Program, coupled with federal tax law changes from the Tax Cuts and Jobs Act (the “TCJA”), may make this program very attractive to you – both in supporting rural hospitals and in planning for your personal Georgia income tax bill.
Specifically, the TCJA limits the amount of state and local taxes (“SALT”) that individuals may deduct to $10,000. This limitation applies to the total of state and local income taxes and ad valorem taxes (including real estate taxes). For many individuals, this represents a limitation on a significant deduction. However, the RHO Program converts the dollars expended from state income taxes paid (subject to the SALT limitation) to a charitable contribution (not subject to the SALT limitation). Thus, for taxpayers whose SALT deduction is limited, this may represent an opportunity to convert an otherwise nondeductible expense to a deductible expense. A word of caution for taxpayers whose SALT deduction is below the $10,000 threshold – while the RHO contribution is deductible for federal income tax purposes, it is not allowed for Georgia income tax purposes.
A listing of the participating hospitals can be found at the Department of Community Health website by clicking here.
For more information on the background of the original legislation (Senate Bill ), please read “Georgia Senate Bill 258: The General Assembly’s Attempt to Sustain Georgia’s Tax-Exempt, Rural Hospitals with a State Income Tax Credit” by clicking here.
If you would like to discuss how participation in the RHO Program might impact your personal income tax situation, please reach out to Draffin & Tucker.