Tax returns show Trump may sidestep the $10,000 SALT cap limit

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Former US President Donald Trump on Nov. 15, 2022.

Eva Marie Uzcategui/Bloomberg via Getty Images

Former President Donald Trump paid millions of dollars in state and local taxes from 2015 to 2020, according to income tax returns made public Friday by the House Ways and Means Committee.

But while the returns show related tax deductions were capped at $10,000 a year starting in 2018 because of a tax law that took effect that year, experts said Trump may have skirted the cap by a solution involving certain business entities.

Doing so would give him a bigger federal tax break and back away from a controversial tax policy in one of his signature legislative achievements, known as the Tax Cuts and Jobs Act, experts said.

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“Just because there was a $10,000 cap, there are ways for him to exceed that limit after 2017,” said Richard Winchester, a tax policy expert and associate law professor at Seton Hall University School of Law.

A spokeswoman for President Trump did not return a request for comment.

A 2017 tax law capped SALT deductions at $10,000

The House Ways and Means Committee’s release of six years of Trump’s tax returns follows a long battle over making them public.

State and local taxes called SALT can include property, income and sales taxes. Trump paid at least $5 million in such taxes each year from 2015 to 2020, according to a breakdown of itemized tax deductions listed on Schedule A of his income tax returns.

Before 2018, taxpayers generally got a dollar-for-dollar tax deduction for the state and local taxes they paid.

That tax benefit has been diluted or erased for some households because of the “alternative minimum tax,” a separate mechanism intended to ensure that wealthy households pay at least a certain amount of tax and avoid these from the excessive use of certain reductions, such as for ASIN.

The alternative minimum tax appears to limit Trump’s ability to write off millions of dollars in state and local taxes from 2015 to 2017, some experts said.

Then, in 2017, Republicans passed a tax law that rewrote key parts of the tax code for individuals and corporations.

The law imposed a $10,000 cap on SALT deductions starting in 2018, a controversial measure that some argued particularly affected individuals in high-tax, left-leaning states like California, New York and New Jersey.

In 2018, Trump paid $10.5 million in state and local taxes, but was only able to deduct $10,000 of the total, for example, tax records show. The dynamic was similar in 2019 and 2020, when Trump listed $8.4 million and $8.5 million of SALT on his income tax returns, respectively, but could only write off $10,000 per year.

The new state rules provide a solution to SALT

However, income tax returns do not provide the full picture, experts said.

Here’s why: Many states issued rules after 2017 that offered a solution to certain business owners affected by the $10,000 SALT cap.

“He put it on [$10,000] SALT limit in the Tax Cuts and Jobs Act, and maybe claimed from time to time that it really hurt him,” said Robert Lord, senior tax policy advisor at Patriotic Millionaires, a left-leaning tax group. “But really did it hurt him?”

Trump likely took advantage of the workarounds, tax experts said.

The workarounds will apply to business income Trump derives from partnerships, S corporations and some LLCs after 2017. Schedule C of his income-tax returns lists some such entities.

You are the tip of the iceberg here.

Martin Shenkman

attorney and CPA

At a high level, rules greenlit by the IRS in 2020 allow those business entities to deduct state and local tax payments from their business income. These entities are not subject to a $10,000 cap.

Because the income from these “pass-through” businesses flows through their owners’ individual tax returns, business owners effectively get a tax break for tax payments in that state and locality thereby circumventing the $10,000 limit.

While Trump likely used these tax rules, it’s impossible to know without additional information such as business tax returns if he did and to what extent he may have benefited, experts said.

They will only apply in states that have passed such laws and for businesses with taxable income.

“You can’t say one way or the other based on what you have here if he did it,” Hal Terr, a certified financial planner and tax partner at Withum, Smith & Brown, said of the tax returns. which was released on Friday by the House Ways and Means Committee.

Because the solution only applies to certain business owners, it’s “something [Trump] could get a benefit from that most people wouldn’t,” said Martin Shenkman, a CPA and attorney who does tax and estate planning for high-net-worth clients.

“You only have the tip of the iceberg here,” Shenkman said, adding that despite the release of Trump’s income tax returns, others such as business, trust and gift tax returns have not been made public. “Most of what he does will remain a mystery.”

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