States Sue Over Deduction Cap, But Midterms Are Coming

By Matthew Lee (August 10, 2018, 4:13 PM EDT) -- Four states have filed suit in U.S. District Court for the Southern District of New York, challenging the constitutionality of the new $10,000 cap on the federal tax deduction for state and local taxes, or SALT, enacted as part of the federal Tax Cuts and Jobs Act in 2017. The lawsuit[1] is the latest effort by states to invalidate the SALT cap. It follows legislative workarounds enacted by New York and New Jersey, granting taxpayers in those states credits against state taxes for making contributions to state-created funds. The Internal Revenue Service has for its part responded by warning taxpayers that the federal law controls the characterization of deductions for federal income tax purposes and that taxpayers who utilize the state law workarounds do so at their peril. While this latest effort to challenge the SALT cap places the legality of the provision before the courts, the long-term fate of the SALT cap is more likely to be decided by the political, rather than the judicial, process....

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