Did IRS Shut Down State Tax Workaround?

Q: Did the IRS’ new proposed regulations shut down a state & local tax workaround? Bill, Red Bank, NJ

A: Before the new tax law was passed, you could generally claim a deduction for taxes paid to state and local governments, but now the deduction for state and local taxes is limited to $10,000. Some states with higher local taxes like NJ have proposed potential workarounds to the new federal limit on the deduction for state and local taxes that include providing a credit to taxpayers for charitable contributions to a state-created charity in lieu of payment of state income tax-the taxpayer would then claim a federal charitable tax deduction for the payment. The IRS’s newly proposed regulations would shut down the suggested workaround for the deductibility of state and local taxes (SALT) related to repositioning payment of state taxes as charitable contributions. The proposed regulations have an effective date for amounts paid and property transferred after August 27, 2018. Thanks for your question, Bill.

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