Iowans who make qualifying charitable contributions will receive a larger Endow Iowa tax credit this year. However, they may actually end up with a smaller tax deduction than in previous years.

Effective Jan. 1, donors are eligible to receive a tax credit equal to 25 percent of a gift to a qualifying community foundation, up from the 20 percent credit offered since the program began.

The program will also have about $1 million more in tax credits available this year, due to a legislative change enacted last year. That compromise measure eliminated deductibility of the donation on state income tax returns.

Because donors were already receiving the benefit of reduced taxable income from the credits, “we felt it was a compromise that made a lot of sense,” said J. Barry Griswell, president of the Community Foundation of Greater Des Moines, who advocated on behalf of the foundation for the changes. “That’s why you have the credit (percentage) going up and the amount going up, but you don’t have the state deductibility.” Donors will still be able to deduct Endow Iowa contributions on their federal tax returns.

However, the program’s days could be numbered. Earlier this month, the Tax Credit Review Panel convened by Gov. Chet Culver recommended imposing a five-year sunset provision on the tax credit program. The Legislature created Endow Iowa in 2003 to encourage individuals, businesses and organizations to make charitable contributions within their communities.

State officials estimate that Endow Iowa has leveraged more than $50 million in charitable giving since its inception, or an average of about $10 for every dollar of tax credits issued. Last year, about $2 million of the $3.1 million in tax credits available were claimed. About $1 million in credits went unclaimed last year, the first time in the program’s history that the full allocation of credits was not used.

The tax credits claimed in 2009 leveraged approximately 1,500 individual donations totaling about $10 million to 78 charitable organizations, according to a preliminary tally by state officials.

That track record, along with the fact that Endow Iowa tax credits are not transferable to investors as some other programs’ credits are, argues strongly for retaining the program, Griswell said.

“Out of all the tax credits, I think this one is by far the most defensible,” he said, “and we’re willing to stand up for it and prove its worth.”

Griswell said that many taxpayers who take the credit, particularly those in higher tax brackets, may see a net effect of a slightly lower tax benefit than they received in past years because the donation itself is no longer deductible.

To qualify for the credits, the charitable gifts must be made by an individual, corporation or financial institution through a qualified community foundation to a permanent endowment fund that limits annual distributions to no more than 5 percent. Donors have five years to use the tax credits.

The tax credits are funded by a combination of state appropriations and gaming revenues. Last year, legislators increased the base amount for the program to $3 million from $2 million. With gaming revenues added in, the program has approximately $4 million in credits available this year.

Tough economic times mean the needs are that much greater, said Libby Mineart, president of the Warren County Philanthropic Partnership. “There’s never been a more vital time for an opportunity like this,” she said.