The federal government has limited future deductibility of State and Local Taxes (SALT) to $10,000 on federal tax returns. This includes, but is not necessarily limited to, state income taxes and local property taxes paid to municipalities or school districts.
In response, New York State has passed legislation enabling local governments and school districts to create a charitable reserve fund. The theory is that by allowing contributions to such a fund, the taxpayer will be entitled to deduct up to 95% of those payments made as a charitable contribution rather than as a property tax deduction and this contribution amount may not be subject to the $10,000 limitation set in the federal budget for State and Local Taxes (SALT).
The Town of Rye and the Village of Rye Brook have both approved legislation for the creation of a charitable gift reserve fund and authorized the adoption of a real property tax credit. The Town of Rye already collects property taxes for the Village of Rye Brook, and will act as agent for the collection of charitable funds for the Village.
If you wish to take advantage of this program, you must come in person to the office of the Town of Rye Receiver of Taxes, 222 Grace Church Street, 3rd floor, Port Chester, NY during regular business hours to make the payments and receive the appropriate forms.
The following are some of the questions and answers about this program:
1) Is this program voluntary? Yes, this program is 100% voluntary. Many taxpayers question whether this deduction program will be allowed by the federal government and are waiting on further guidance.
2) What is the likelihood that my payment will be deductible for Federal Tax purposes? There is no way to currently determine if it will be allowed as a deduction by the federal government. Taxpayers should be mindful that federal law controls the proper characterization for federal income tax purposes. The Treasury Department and the IRS have advised caution and have issued statements that indicate they intend to propose regulations addressing the federal tax treatment of programs like the one adopted by New York State.
3) What is the downside/risk? When a Federal deduction is disallowed, taxpayers are potentially subject to interest, penalties, and additional review. The taxpayers would also end up paying their local government an amount equal to an additional 5% of the payment due for their property taxes which would not be returned or refunded if the deduction is disallowed after the payment is made to the Receiver of Taxes.
4) How and when can I make the charitable contribution? For Village tax bills due in June 2018, taxpayers would be required to make any charitable contributions in person at the Town of Rye Receiver of Taxes office at 222 Grace Church Street, Port Chester, NY by 4:00 p.m. on Monday, July 2, 2018.
5) What if my mortgage company pays my property taxes or the mortgage company already paid my property taxes? The process is more complicated and we are awaiting direction and guidance from New York State on how this will be addressed. Taxpayers should contact their mortgage company to make any payment or reimbursement arrangements. It may be possible that if your mortgage company already paid the taxes, the taxpayer could still make the charitable payment and request a refund. Please note that if this is allowed by your mortgage company, this would mean a double payment until a method is determined to have the bank pay the fund directly.
6) What if I already paid my village taxes on my own? The Town can prepare a refund of the taxes already paid, and you can still participate in the charitable contributions program to receive the deduction. Please note that this would mean a double payment until the Town refund is processed.
7) Can I make a charitable contribution in an amount less than the full amount due for property taxes? Yes, but please remember that 95% of the charitable amount submitted would be deductible.
8) Can I earmark the municipal program area that my charitable contribution goes to? No.
9) How do I make the payments and claim the tax credit? You must provide the tax receiver with the full amount of your property taxes. If you choose to take advantage of the charitable contribution program, you will also pay an additional 5%. Here’s how it will work:
You must go in person to the Tax Receiver’s Office. Tell the Tax Receiver how much you wish donate as a contribution to the Village of Rye Brook Charitable Gifts Reserve Account. You will then make payment and receive four receipts: two will be for the charitable contribution amount you have just made and two will be claim forms for property tax credit which will reflect 95% of your charitable contribution. Keep one set for your records. You will submit one claim form back to the Tax Receiver along with the balance owed on your property taxes.
For example, if $1,000 is due for Village property taxes:
• The property owner pays up to $1,000 in a charitable contribution.
• The Town returns two copies of the acknowledgement form and two copies of the claim form to the property owner. $950 of the $1,000 would be considered deductible and would be a credit off income taxes due.
• The property owner submits one of the claim forms for the property tax credit along with the town’s acknowledgement of the charitable contribution back to the Receiver of Taxes. The other claim form is for your records. The property owner also makes an additional payment of $50 for the balance of the property taxes due.
• The result is that the Village receives 100% of the amount due, the Town receives $50 for administering the program, and the property owner receives a receipt for $950 that could be considered tax deductible for federal income tax purposes.
10)What if I have additional questions? Please call (914) 939-3558 or stop by the Town of Rye Tax Collector’s office.
The Town of Rye and the Village of Rye Brook do not offer any tax advice and make no representations whatsoever that such payments will be allowed as tax deductions on any future tax returns. It is strongly advised that property owners interested in this program consult a tax advisor for guidance. Property owners participating in this program will be required to sign a disclaimer.
The policy and process outlined above are subject to change without notice by action of the State and/or Federal Government