A new Colorado law will limit charitable deductions for state income tax purposes for high-income earners effective as of January 1, 2022. Colorado House Bill 21-1311, which was signed into law on June 23, 2021, limits the amount of federal itemized deductions that are allowed for Colorado state income tax purposes. The limit applies to taxpayers with a federal adjusted gross income of $400,000 or more. The itemized deductions are capped at $30,000 for single filers and $60,000 for joint filers.
If you or your clients file jointly, earn over $400,000 in income in a year and itemize deductions for federal income tax purposes, please note that state itemized deductions, including deductions for gifts to charitable organizations, will be limited (or reduced) to $60,000 regardless of the amount deducted for federal purposes. Thus, to the extent you or your clients were intending to make a large charitable gift in 2022, you may wish to accelerate that gift to 2021 to take full advantage of the charitable deduction for Colorado state income tax purposes.
A donor-advised fund can be the perfect mechanism to make such a gift, as the charitable deduction can be taken in the year of the gift to the fund, while grants to specific charities from the fund can be made in later years. Of course, it is always best to consult your own income tax advisor when considering the income tax implications of making a charitable gift.
Kami Pomerantz is a partner at Holland & Hart where she concentrates on estate planning and estate administration and advises clients regarding general federal taxation matters and charitable giving. She is a donor-advised fundholder at Rose Community Foundation.