Montana Tax Credit Q&A

The Montana Tax Credit gives donors a generous additional incentive to make gifts to endowments.  This tax benefit will continue to be available at least through 2019.

 

WHAT IS THE MONTANA TAX CREDIT FOR GIFTS TO ENDOWMENT?

Recognizing the scarcity of resources available to Montana not-for-profits and the low level of endowment holdings relative to nearly all other states, the legislature established the tax credit in 1997.  The legislation provides an incentive to individuals and businesses to give to endowments.

 

IS IT REALLY A TAX CREDIT AND NOT A DEDUCTION?

Yes!  Donors who make a gift to a qualified, permanent endowment held by a Montana-based 501(c)(3) charity—such as the Yellowstone Art Museum—earn a generous credit that directly reduces their state income tax liability.

 

HOW MUCH IS THE CREDIT?

The credit may vary, but can be as much as 40% of the value of the donation, up to $10,000 as a credit ($20,000 for couples), but may not exceed the taxpayer’s tax liability.  The tax credit can benefit individuals, couples, estates, and businesses.  Any Montana taxpayer qualifies.

 

WHERE CAN I/WE LEARN MORE?

We encourage you to consult with your financial planner, tax advisor, or attorney for more specific information.  Other resources include the Governor’s Task Force on Endowed Philanthropy (www.endowmontana.org/faqs.html) or the Montana Department of Revenue (www.mt.gov/revenue).

 

I’VE NEVER ESTABLISHED A GIFT ANNUITY BEFORE.  CAN YOU GIVE ME SOME EXAMPLES?

Charitable Gift Annuity Example 1

Mr. and Mrs. Adams established a charitable gift annuity with a $50,000 gift to the Yellowstone Art Museum.  YAM follows the American Council on Gift Annuity guidelines, which recommend a maximum annuity rate of 5.5% based on the couple’s ages (60 and 65 years).  YAM will pay them $2,750 per year for the rest of their lives.

The Adamses receive an immediate charitable deduction based on the current mid-term federal rate, plus part of each annuity payment is tax-free.  In addition, if the Adamses designate their gift for a qualified Montana endowment fund, they will enjoy a one-time state income tax credit that could be as much as $20,000 on their Montana income tax return.

Charitable Gift Annuity Example 2

Mr. and Mrs. Smith make an irrevocable gift of $25,000 in cash or securities to the YAM at the age of 50 to fund a deferred gift annuity.  They are both 50 years old and defer their first annuity payment until they are 80 at which time they will receive a fixed annual income of $1,250 paid by the Yellowstone Art Museum.

In addition to the federal charitable deduction of approximately $23,491 they would also receive a Montana State Tax Credit for 40% of the present value of the gift (the federal charitable deduction) or $23,491 x 40% = $10,983 in Montana state income tax savings.