Minnesota’s State Housing Tax Credit Program offers a generous charitable tax break
By Steven Warren, CPA
December 4, 2023
There is a new Minnesota tax credit that offers an amazing, almost too-good-to-be-true tax incentive. This
new tax saving opportunity for your charitable dollars is directed to affordable housing in Minnesota and is administered by the Minnesota Housing Finance Agency (also known as Minnesota Housing).
The big benefit is a nonrefundable Minnesota income tax credit for 85% of the amount you contribute. A credit is a dollar-for-dollar reduction to your tax liability. In contrast, a deduction only reduces your taxable income. There is not a Minnesota charitable contribution deduction allowed for this donation.
What are the eligibility requirements?
Eligible contributors include any taxpayer subject to Minnesota income and franchise tax. Pass-through entities such as S Corporations and partnerships receive a single certificate and report the credit information on tax return owner schedules. The credit is considered distributed to multiple owner entities on the last day of the year, regardless of when during the year the contribution was made. Reduced credits are available for nonresidents and part-year residents.
How much in tax credits is available?
Donations can be as low as $1,000 or as much as $2 million for each year of the program. If you donate more than your Minnesota tax liability, the excess carries over for potential use over the next 10 years.
The aggregate amount of tax credits that can be issued to all taxpayers combined is $9.9 million for each year of the program. Therefore, the maximum amount of qualifying contributions from all donors combined is limited to $11,647,059 annually. The program is in place through 2028.
Is a federal deduction allowed?
A federal itemized charitable contribution deduction is allowed for the donation subject to standard substantiation rules. The deductible amount is the contribution amount reduced by the expected tax credit for the donation, including any carryover. That normally is 15% of the donated amount.
How and by when do you need to donate?
For you to get the tax benefit for 2023, you need to apply online by 5 p.m. Dec. 13, 2023.
If your application is approved, you will get payment instructions, and a signature form via DocuSign to be signed electronically. Payment must be made either electronically using EFT/ACH or by check. Applications submitted after 5 p.m. Dec. 13, 2023, through Dec. 31, 2023, will not be approved.
For each year of the program, the signature form and donation must be received by Minnesota Housing Finance Agency by the earlier of 30 days from the date they send you the signature form, or a specified date and time (3 p.m. Dec. 29 for 2023). Minnesota Housing is to issue the taxpayer a certificate within 30 days of receiving the signature document and funds.
What else should you know?
When applying, you can request to have your donation directed to a specific qualifying project. An allocation to a specific project is not allowed when the donor or a related party to the donor is a program grant recipient for that tax year or the following tax year.
Donations are irrevocable. If a specifically requested project is not approved, the donation will be added to the general fund. A nonverified list of approved projects can be found by scrolling down on
this page on the website of Minnesota Housing Partnership, a housing advocacy nonprofit organization.
Thanks to this new program, for some Minnesota taxpayers, more than 90% of a charitable contribution can be reimbursed in the form of tax savings.
Steven E. Warren, CPA, MBT, is a senior manager at Schechter Dokken Kanter CPAs.
