State Tax Credit for Endowment Gifts
Endowments are a sustainable forever gift. Many donors choose to establish or add to existing endowment funds to provide a vital base source of funding that may allow the organization to carry on, even in lean years.
Businesses (C corporations, S corporations, estates, limited liability companies, trusts, and financial institutions) that pay ND income tax may take a 40% credit up to a total of $10,000 for gifts to the qualified endowment fund of a qualified North Dakota charity. Effective for taxable years starting in 2011.
Individuals may receive a state tax credit for a contribution for $5,000 or more (lump sum or aggregate in one year) to a qualified North Dakota endowment. The tax credit is 40% of the charitable deduction allowed by the IRS up to a maximum credit of $10,000 per year per taxpayer or $20,000 per year per couple filing jointly. Effective for taxable years starting in 2011.
In all of the above, the credit may be carried forward for 3 additional tax years if it cannot all be used in one year.
Businesses (C corporations, S corporations, estates, limited liability companies, trusts, and financial institutions) that pay ND income tax may take a 40% credit up to a total of $10,000 for gifts to the qualified endowment fund of a qualified North Dakota charity. Effective for taxable years starting in 2011.
Individuals may receive a state tax credit for a contribution for $5,000 or more (lump sum or aggregate in one year) to a qualified North Dakota endowment. The tax credit is 40% of the charitable deduction allowed by the IRS up to a maximum credit of $10,000 per year per taxpayer or $20,000 per year per couple filing jointly. Effective for taxable years starting in 2011.
In all of the above, the credit may be carried forward for 3 additional tax years if it cannot all be used in one year.
State Tax Credit for Planned or Deferred Gifts
Individuals may make a qualified deferred gift to a qualified ND nonprofit organization or to a qualified ND endowment fund. The Community Foundation of Grand Forks, East Grand Forks & Region and its component funds are considered qualified charities. The tax credit is 40% of the charitable deduction allowed by the IRS up to a maximum of $10,000 per year per taxpayer or $20,000 per year per couple filing jointly. Effective for taxable years starting in 2007.
Example: A couple enters into a $200,000 charitable gift annuity agreement with the Community Foundation. The IRS allows them to deduct $100,000 from their federal taxable income as a charitable gift. The couple would qualify for a $20,000 ND Income Tax Credit. They could take up to 4 years to take the credit against their ND income tax liability. The credit is limited to the amount of their income tax liability.
Example: A couple enters into a $200,000 charitable gift annuity agreement with the Community Foundation. The IRS allows them to deduct $100,000 from their federal taxable income as a charitable gift. The couple would qualify for a $20,000 ND Income Tax Credit. They could take up to 4 years to take the credit against their ND income tax liability. The credit is limited to the amount of their income tax liability.
Definitions Under State Law
Qualified nonprofit organization: A qualified nonprofit organization is a tax-exempt charitable organization under federal income tax law that meets either of the following sets of criteria:
Qualified endowment: A qualified endowment fund is a permanent, irrevocable fund that is held by a qualified nonprofit organization (or by a bank or trust company on behalf of the qualified nonprofit organization); is comprised of cash, securities, mutual funds, or other investment assets; is established for a specific religious, educational, or other charitable purpose; and is only allowed to disburse the income from, or the increase in value of, the assets contributed to the fund.
Planned Gift: A planned gift is a gift that qualifies as a charitable contribution for federal income tax purposes and is made using one of the following gifting methods:
- It is incorporated or established in North Dakota and maintains a physical location in North Dakota.
- It is incorporated or established in a state bordering North Dakota; maintains a physical location outside North Dakota that is within five miles of a North Dakota city with a population of 5,000 or more that does not have a hospital; and supports or benefits a hospital, nursing home, medical center, or any combination of these.
Qualified endowment: A qualified endowment fund is a permanent, irrevocable fund that is held by a qualified nonprofit organization (or by a bank or trust company on behalf of the qualified nonprofit organization); is comprised of cash, securities, mutual funds, or other investment assets; is established for a specific religious, educational, or other charitable purpose; and is only allowed to disburse the income from, or the increase in value of, the assets contributed to the fund.
Planned Gift: A planned gift is a gift that qualifies as a charitable contribution for federal income tax purposes and is made using one of the following gifting methods:
- Charitable remainder unitrust (CRUT)
- Charitable remainder annuity trust (CRAT)
- Pooled income fund trust
- Charitable lead unitrust (CLUT)
- Charitable lead annuity trust (CLAT)
- Charitable gift annuity
- Deferred charitable gift annuity
- Charitable life estate agreement
- Donation of a paid-up life insurance policy
On June 11, 2019 the IRS announced that final regulations had been issued regarding the impact the receipt of state and local tax credits will have on charitable contributions (Rule 84 FR 27513). These regulations also include safe harbor provisions, which may provide a benefit to taxpayers in certain circumstances (IRS Notice 2019-12).
At the request of the North Dakota Association of Nonprofit Organizations, Anne M. Stoll, CPA at Eide Bailly LLC, has provided an article to specifically address the impacts of the final IRS regulations on SALT and state giving tax credits related to North Dakota’s existing giving incentives.
We are encouraging our donors and fund holders to acquaint themselves with the new regulations and refer any questions or concerns to their tax advisor.
Regardless of the changes, the Foundation strongly believes that the 40% North Dakota Tax Credit for Endowment Gifts remains a positive incentive for donors and charitable organizations alike. By making a qualifying gift, you can lower the net cost of your contribution and increase its impact in our region.
At the request of the North Dakota Association of Nonprofit Organizations, Anne M. Stoll, CPA at Eide Bailly LLC, has provided an article to specifically address the impacts of the final IRS regulations on SALT and state giving tax credits related to North Dakota’s existing giving incentives.
We are encouraging our donors and fund holders to acquaint themselves with the new regulations and refer any questions or concerns to their tax advisor.
Regardless of the changes, the Foundation strongly believes that the 40% North Dakota Tax Credit for Endowment Gifts remains a positive incentive for donors and charitable organizations alike. By making a qualifying gift, you can lower the net cost of your contribution and increase its impact in our region.
