*Editor's Note: This has been delayed to 2022. Please view our updated blog here: https://kahnlitwin.com/blogs/t...

Good news Massachusetts! This year the Massachusetts Part B individual income tax rate dropped to 5%. The income tax rate decrease also means that there will be another big change to MA tax law – the reinstatement of the charitable contribution deduction for tax year 2021. Here are the details.

More about the charitable deduction

A common tax saving method, especially at year-end is donating to charity. A donation to a qualified charitable organization can be deducted on schedule A of your federal income tax return as an itemized deduction. Donations can be made in the form of cash, property or appreciated shares of stock.

What’s new in 2021?

While Taxpayers who have gifted to a qualified charity have been able to deduct this amount on their federal tax return, a deduction for charitable contributions has been disallowed for MA for all tax years beginning on or after January 1, 2002. The deduction had been suspended by the 2002 ‘Act Enhancing State Revenues’ and would not be available again until the year after the MA income tax rate equaled 5%. The 5% part B income tax rate took effect as of January 1, 2020 which means that the deduction will be available for the upcoming 2021 tax year.

Requirements and eligibility for deduction:

• The requirements, limitations and conditions under Internal Revenue Code section 170 must be followed to determine the amount of the deduction
• The deduction will not be available for household items or used clothing
• Taxpayers do not need to itemize on their federal return in order to take the deduction on the MA return
• The deduction can only be taken against MA Part B adjusted gross income (wages, pensions, business and rental income etc). It cannot be taken against part A or C income.
• Part year residents are eligible for the deduction, but it will be reduced by the pro-ration formula (number of days of MA residency divided by 365)
• Non-residents can also take the charitable deduction but the deduction will be reduced by their MA income divided by their total income from all sources.

Taxpayers claiming the MA charitable deduction must also follow the record keeping procedures outlined in IRS code section 170 in order to substantiate the deduction.

It is important to consider this tax law change in order to ensure that you are maximizing your deductions. You will want to take this into account while deciding if and when to make any future charitable gifts. There will be further guidance on this issue once the law takes effect in the upcoming year. As always, we will keep you updated.

For more information please contact any member of our Private Client Services Group.