With the 2017 passage of the “Tax Cuts and Jobs Act,” deductible credits for payment of state and local taxes (so-called “SALT credits”) were capped at $10,000 per married couple filing jointly or $5,000 per individual. In higher-tax areas like New York, California and Washington, D.C., these limits were generally met with derision and trepidation. After all, the lowered limits mean higher federal tax liability in all areas, but the hardest hit will be the ones with the highest state and local tax rates.
Some state and local governments almost immediately either proposed or passed legislation aimed at lessening the impact of the lowered SALT credits. This was done by allowing taxpayers to transfer funds to a charitable entity controlled by the state or local legislatures. Those funds would then be both applied to overall tax liability while still being characterized as a charitable contribution (and thus subject to a much higher deduction/credit limit at the federal level).
This seemed to be a good compromise for many; it both increased the coffers of local and state-level charitable organizations and allowed taxpayers to keep their previous standard of SALT exemption.
The federal government says otherwise
Unfortunately, the federal government does not see such ordinances and legislation as a fair compromise. On May 23, 2018, the federal government announced their intention to propose federal tax regulations specifically disallowing this practice. Instead, state and local legislatures would be bound by federal treatment of such funds, and thus still subject to the SALT credit limitations.
This regulation is still in its infancy, so for now, it seems that lower-level legislatures have indeed thrown a proverbial bone to taxpayers this fiscal year. Check with a tax professional before filing to see if your SALT deduction might possibly be increased by a state law or local ordinance.