Donation taxes: How are college and university donations taxed?


MMost students who have left college or university have huge debts to the state, they all want to know how tax for both types of institutions are considered. In fact, there are some colleges and universities that make most of their money from these huge debts that take decades to pay off. In many cases, these debts take a long time to pay off and increase due to interest.

Such institutions are typically public and private non-profit charities, meaning that donations to their foundations are never taxed and assets increase tax-free over the years. However, the tax legislation for this practice was created back in 2017, and therefore an exception was born. The government has begun imposing a tax on donation income from a relatively small number of private non-profit colleges and universities.

What is the name of this tax law?

Know Like 2017 Tax Cuts and Employment Act, this imposes a new tax on a reduced group of private non-profit colleges and universities. These are schools with at least 500 students who have donations in excess of $500,000 per student. These schools are forced to pay a 1.4% tax on their net investment income.

This $500,000 threshold is never indexed for inflation. According to Treasury Department, there are only about 40 schools in the country that meet the criteria for paying this tax law. in I.R.S. offers guidance to all schools to see if they meet the criteria.

Currently, most private colleges and universities do not pay taxes because they 501(c)(3) status in relation to their educational purpose. Many of these schools are trying and successfully accumulating donations or financial assets that can generate income for them in order to supplement a budget that can provide them with long-term financial stability.

Currently, public and private schools of this kind hold more than $500 billion in endowments, but only 23 of them own approximately 50% of these assets. No wonder they are against suspension of student loans, it would mean their financial ruin.


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