On June 11th, the IRS issued final regulations that put a stop to plans by New York and New Jersey to try to work around the 2017 tax law to save residents’ a portion of the now-reduced State And Local Tax deductions, or “SALT.”
The 2017 tax law, known as the “Tax Cuts and Jobs Act of 2017,” capped SALT deductions at $10,000.00 Prior to 2017, the SALT deduction was not limited. This change was seen as most impacting states like New York, New Jersey and California, which typically have higher property and state income taxes.
“By finalizing this rule, the federal government is continuing its economic assault on New York,” said New York Gov. Andrew Cuomo. “The IRS regulations promulgated today lack any basis in the law, upend decades of precedent without authorization from Congress, and target programs established by New York and other states to incentivize charitable contributions.”
The SALT deduction has been part of the Internal Revenue Code since the federal government created the income tax in 1913.
To help ease the burden on taxpayers, New York passed a law that would allow taxpayers to re-characterize their local property taxes as “charitable donations.” It would have allowed municipalities to set up “charitable reserve funds” that could refund taxpayers up to 95 percent of the value of such charitable donation.
Under the new regulations the IRS passed, which go into effect in August, anyone making tax-deductible donations to a charity must reduce their federal deduction by the amount they get back from the state, reducing the deduction taxpayers would otherwise receive.
“New York already sends $36 billion more to Washington than we get back every year. And thanks to the SALT cap, New Yorkers are being used as ATMs, footing an additional $15 billion each year," Cuomo said. “In response to this economic attack, we crafted a new charitable contribution program. We will pursue all options, including litigation, to resist this attack on our state and our taxpayers.”