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Treasury Department Issues Final Endowment Tax Rule

September 25, 2020

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CONTACTS
Brett Roude, Legislative Analyst
Matthew Shick, Sr. Director, Gov't Relations & Regulatory Affairs

The U.S. Department of Treasury released its final rule on Sept. 18 that imposes a 1.4% excise tax on certain private colleges and universities with at least 500 tuition-paying students and endowments worth at least $500,000 per student.

Implementing a provision from the Tax Cuts and Jobs Act of 2017 (P.L. 115-97), the final rule, commonly known as the “endowment tax,” addresses some concerns raised by the higher education community and the AAMC [see Washington Highlights, Oct. 4, 2019] such as:

  • Recognizing that colleges and universities are not strictly comparable to private foundations.
  • Excluding from the calculation of net investment income (NII):
    • Income derived from institutional student loans.
    • Income from housing for students, faculty, and staff.
    • Royalty income derived from patents and copyrights resulting from the work of students or faculty members.
  • Streamlining the requirements to gather basis information from donors of gifts of appreciated property.
  • Allowing institutions to carry over capital losses against capital gains in future years.

The new endowment tax regulations are effective Sept. 18.

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