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SALT Deduction Cap Remains After No Action From Supreme Court

April 26, 2022

The U.S. Supreme Court Monday declined to review a four-state challenge to the 2017 tax law capping federal tax deductions for state and local taxes, known as SALT.

As a result, the 2017 tax law that caps state and local taxes that individuals can deduct on federal income tax returns at $10,000 stands. The cap applies from 2018 to 2025 and sunset automatically thereafter.

The states – New York, New Jersey, Connecticut and Maryland – sued the U.S. Treasury secretary and Internal Revenue Service in 2018, alleging the cap interferes with states’ sovereign choices. They also argued the law was politically motivated because it singled-out predominantly Democratic states.

The law was part of a broader legislation that revised the Internal Revenue Code, and included nearly doubling the standard deduction; adding a new “family credit” for taxpayers with dependents; and lowering tax rates for most individual income-tax brackets.

The lower courts acknowledged in New York v. Yellen, U.S. (No. 21-966) that the SALT deduction cap was a dramatic departure from the government’s traditional position that prevented the federal government from interfering with states’ sovereign authority to levy and collect property and income taxes to fund schools, roads and infrastructure.

However, both the trial court and the appellate court conclude the Constitution doesn’t limit Congress’ authority to curtail or eliminate the SALT deduction.

“Every year that the cap is in effect, millions of taxpayers will pay billions of dollars in additional federal income taxes, forgo home ownership or suffer other economic harms,” according to the plaintiffs’ petition to the Supreme Court.

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