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Archive for SALT Deduction

Fixing The State And Local $10,000 Cap

Annette Nellen

On June 25, 2019, the House Ways and Means Committee held a hearing on the SALT cap with the majority’s views on it clear from the title of this hearing: How Recent Limitations to the SALT Deduction Harm Communities, Schools, First Responders, and Housing Values. Testimony was provided by some state and local elected officials and the Tax Foundation.

I agree that this is a flawed provision that was addressing what was already a flawed provision. There were no hearings held for the Tax Cuts and Jobs Act so it was difficult to get broad input into the process.  The AICPA Tax Section did submit a few letters during this process including one that made a very important point. If individuals would have a cap on their state and local tax deduction when claimed as an itemized deduction, an additional change had to be made to treat all business entities the same. Since a C corporation continues to get to deduct all of the state and local income taxes it pays, so should a sole proprietor, partner and S corp shareholder. That could have been accomplished by making a change to a 1944 law to allow state and local income taxes on that business income to be deducted above the line (for AGI) rather than only as an itemized deduction. [See AICPA letter of 11/21/17 and letter of 9/25/18 submitted when the House was discussing Tax Reform 2.0]

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SALT Deduction – Battle Lines Have Been Set and Swords Have Been Drawn

Charles Woodson - SALT Deduction - Battle Lines Have Been Drawn

Tax reform has limited the federal itemized deduction for state income and local government taxes (including property taxes), collectively referred to as the SALT deduction, to $10,000 a year. This set off a firestorm of protests from the capitals of states with high state income and property taxes. Many called it political retribution by the Republican-controlled Congress against blue states.

As it turns out, CA, CT, NJ and NY are among the states with the nation’s highest combined state income and property taxes, and they happen to be blue states. As a result, the legislatures in these states have passed or are working on legislation at the state level to circumvent the federal $10,000 limit on SALT deductions by transforming tax deductions into charitable deductions through some clever legislation.

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