What to Expect from IRS Guidance on SALT Deduction Cap Workarounds

The Internal Revenue Service (IRS) is expected to issue formal guidance on the legality of SALT deduction cap workarounds any day now, and the tax community is on pins and needles. What will the guidance say? Will it spare existing credits? While we wait on the IRS, let’s consider a few questions about what’s to come. What is the SALT deduction cap anyway, and why does it matter? Prior to the enactment of the Tax Cuts and Jobs Act, taxpayers who itemize were permitted to deduct the entire value of their major state and local tax payments from federal income, reducing their federal income tax liability. This policy substantially reduced tax liability for many high-income filers, particularly those in high-tax states. Under the new law, the state and local tax (SALT) deduction is capped at $10,000. While most filers are still better off due to lower rates and other reforms, some states appreciated the degree to which the uncapped deduction lowered the effective cost…

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