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Following the introduction of new IRS rules that would block state-government workarounds to state and local tax (SALT) deduction caps enacted as part of last year’s GOP tax law, Senate Democratic Leader Chuck Schumer (D-NY), Senate Finance Committee ranking Democrat Ron Wyden of Oregon, and other Senate Democrats introduced a Congressional Review Act (CRA) Resolution of Disapproval to nullify the recent IRS decision, restore states’ ability to work around the caps, and allow homeowners to again fully retain their SALT deduction.
While the Treasury Department blocked states’ workarounds for families, the department in September 2018 issued guidance that allowed businesses to continue to benefit from these same workarounds.
The GOP tax law limited, for the first time, taxpayers’ SALT deduction, to $10,000 annually. This new limitation primarily hits such large blue states as California, Maryland, New Jersey and New York.
The limitation can cost taxpayers tens of thousands of dollars a year.
Some affected states have tried to get around the deduction cap by passing state-level legislation designed to convert state and local taxes to charitable contributions. Under this approach, taxpayers could donate to state and local funds and receive tax credits against their state and local taxes. The intention was for the taxpayers to deduct the donations as charitable contributions on their federal returns, which are not capped.
The IRS and Treasury Department blocked this approach, however.
“As if the Trump-Republican Tax Bill wasn’t already bad enough for middle class families, these new IRS regulations are another kick in the gut to homeowners in New York State and across the country,” said Senate Democratic Leader Chuck Schumer (D-NY). “The IRS is seeking to deny hardworking homeowners the benefit of the full SALT deduction while continuing their tax giveaway to the wealthiest few and corporations. Today, we are fighting back with a CRA Resolution of Disapproval, which is guaranteed a majority threshold up-or-down vote, would overturn the IRS’s recent attempt to block states from implementing workaround plans, and would allow homeowners to again fully receive this tax benefit. America’s homeowners deserve peace of mind.”
Under the pre-Trump tax code, taxpayers who itemized deductions on their federal income tax returns could deduct state and local real estate and personal property taxes, as well as either income taxes or general sales taxes. State and local income and real estate taxes had made up approximately 60 percent of local and state tax deductions while sales tax and personal property taxes made up the remainder, according to the Senate Democrats.
According to the Tax Policy Center, approximately one-third of tax filers had itemized deductions on their federal income tax returns.