By: Franca Tavella
On June 11, 2019, the IRS issued final regulations that will prohibit taxpayers from using state programs to sidestep state and local tax (SALT) deduction limitations. The SALT deduction, which has been in existence for over 100 years, has historically allowed high-income taxpayers to deduct certain state and local property, income and sales taxes on their federal tax returns without limitation. However, the Tax Cuts and Jobs Act of 2017 capped the SALT deduction at $10,000 per return for single filers, head of household filers, and married taxpayers filing jointly (the cap for married taxpayers filing separately is $5,000). As a result, states with relatively higher tax burdens – such as New York, Connecticut and New Jersey – developed various programs to help their residents circumvent the $10,000 SALT cap. For example, a taxpayer in New York could contribute to a charitable fund created by the State for educational or other purposes in return for a state income tax credit and the ability to separately deduct the entire charitable contribution on their federal tax return.