Minnesota’s State Housing Tax Credit Program Offers a Generous Charitable Tax Break

By Published On: November 30, 2023Categories: Tax News

• Minnesota income tax credit available for 85% of amount contributed
• Donated funds directed to qualifying affordable housing projects in Minnesota
• Proper method and timing of donation critical for getting Minnesota tax break
• Federal itemized tax deduction available for 15% of the donated amount

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.

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. Reduced credits are available for nonresidents and part-year residents.

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.

A federal itemized charitable contribution deduction is allowed for the donation. 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.

For you to get the tax benefit for 2023, you need to apply online by 5 PM on December 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 between December 14, 2023, and December 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 PM on December 29 for 2023). Minnesota Housing is to issue the taxpayer a certificate within 30 days of receiving the signature document and funds.

When applying, you can request to have your donation directed to a specific 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 grant to specifically requested project is cancelled or recaptured, the donation will be added to the general fund. A nonverified list of approved projects can be found by scrolling down on the Tax Credit Contribution Fund Projects page on the website of Minnesota Housing Partnership, a housing advocacy nonprofit organization.

Thanks to this new program, for some Minnesota taxpayers, over 90% of a charitable contribution can be reimbursed in the form of tax savings.