by Kami Pomerantz

The Child Care Contribution Tax Credit (the “CCTC”) provides a valuable tax credit against a taxpayer’s Colorado state income tax.  The credit equals 50% of the amount of a contribution made to a qualifying Colorado charitable organization that promotes child-care.  At the end of August, the IRS issued proposed regulations amending Treas. Reg. Section 1.170A-1.  The proposed regulations would limit the deductibility for federal purposes of charitable donations that qualify for a state or local tax credit like the CCTC.  While at a glance the proposed regulations seem to have a negative impact, in reality, for most taxpayers who itemize their federal deductions, the CCTC will remain an effective way to make charitable contributions at a substantially reduced net cost.

The CCTC applies to contributions of cash, (contributions of stock do not qualify) to Colorado institutions that support child care for children under 12 and to certain approved charities.  Under prior law, these contributions were deductible as charitable contributions for federal and state income tax purposes.  In addition, a taxpayer could credit 50% of the contribution against the taxpayer’s Colorado state income tax liability.  These deductions and credits substantially reduced the after -tax cost of such donations to taxpayers.  A taxpayer in the 35% federal tax bracket and subject to the 4.63% Colorado state income tax rate could make a charitable contribution of $30,000 for a net out of pocket cost of $8,847.