Tax returns show Trump may have sidestepped $10,000 SALT cap limit

Former President Donald Trump paid thousands and thousands of {dollars} in state and native taxes from 2015 via 2020, in accordance with revenue tax returns publicly launched Friday by the Home Methods and Means Committee.

However whereas the returns show related tax deductions had been capped at $10,000 a yr beginning in 2018 — as a consequence of a tax legislation that took impact that yr — consultants say Trump may have been in a position to bypass the cap by way of a workaround involving sure enterprise entities.

Doing so would have given him a much bigger federal tax break — and sidestepped a contentious tax coverage in certainly one of his signature legislative achievements, referred to as the Tax Cuts and Jobs Act, consultants mentioned.

“Just because there was a $10,000 cap, there are ways for him to get around that limit post-2017,” mentioned Richard Winchester, a tax coverage knowledgeable and affiliate legislation professor at Seton Corridor College College of Legislation.

A spokesperson for President Trump did not return a request for remark.

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

The Home Methods and Means Committee’s launch of six years of Trump’s tax returns follows a prolonged struggle over making them public.

State and native taxes — so-called SALT — may embrace property, revenue and gross sales tax. Trump paid a minimum of $5 million in such taxes every year from 2015 via 2020, in accordance with a breakdown of itemized tax deductions listed on Schedule A of his revenue tax returns.

Previous to 2018, taxpayers usually acquired a dollar-for-dollar tax deduction for the state and native taxes they paid.

That tax profit was diluted or erased for some households as a result of “alternative minimum tax,” a separate mechanism that goals to make sure that rich households pay a minimum of a certain quantity of tax and forestall them from overly leveraging sure deductions, just like the one for SALT.

It seems the choice minimal tax restricted Trump’s skill to put in writing off thousands and thousands of {dollars} of state and native taxes from 2015 to 2017, some consultants mentioned.  

Then, in 2017, Republicans handed a tax legislation that rewrote main parts of the tax code for people and companies.

The legislation imposed a $10,000 limit on SALT deductions beginning in 2018 — a controversial measure that some claimed especially impacted 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 each year.

New state rules provide a SALT workaround

However, the income tax returns don’t provide the full picture, experts said.

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

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

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

The workarounds would apply to business income Trump derived from partnerships, S corporations and some LLCs after 2017. Schedule C of his income-tax returns list several such entities.

At a high level, the rules — which the IRS greenlighted in 2020 — allow those business entities to write off state and local tax payments from their business income. These entities aren’t subject to a $10,000 cap.

Because the income from these “pass-through” businesses flow through to their owners’ individual tax returns, the business owners effectively get a tax break for those state and local tax payments — thereby sidestepping the $10,000 cap.

While it’s likely Trump leveraged these tax rules, it’s impossible to know without additional information like business tax returns if he did and the extent to which he may have benefited, experts said.

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

“You can’t say one way or another based on what you have here if he did it,” Hal Terr, an authorized monetary planner and tax associate at Withum, Smith and Brown, mentioned of the tax returns launched Friday by the Home Methods and Means Committee.

Because the workaround solely applies to sure enterprise house owners, it is “something [Trump] would have gotten a benefit from that most folks wouldn’t have,” mentioned Martin Shenkman, a CPA and lawyer who does tax and property planning for high-net-worth shoppers.

“You only have the tip of the iceberg here,” mentioned Shenkman, who added that regardless of the discharge of Trump’s revenue tax returns, others like enterprise, belief and reward tax returns have not been made public. “Much of what he does will remain a mystery.”

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