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In 2017, the Tax Cuts and Job Act imposed a ten thousand dollar ($10,000) cap on the amount of itemized deductions that a taxpayer can deduct on the taxpayer’s tax return (the “Cap”). Prior to the Cap, a taxpayer could deduct the full amount of all state and local taxes paid to the applicable state and localities where the taxpayer has a residence(s) regardless of amount.

For a taxpayer that has a residence in a high tax state, the Cap meant that since 2017, such taxpayer has lost a great deal of deductions that could have been used to offset and lower the taxpayer’s taxable income that is subject to federal income tax. Therefore, since 2017, this has caused unneeded stress to many taxpayers as they have had to juggle their finances to pay for items that they were using prior pre-Cap refund money for in their lives. Also, it is highly likely that it has deterred many people from purchasing a home in high tax localities.

A September 2021 article and study published by Rockefeller College of Public Affairs & Policy and titled “Repealing the SALT CAP: State-by-State Impact” (the “Study”), reported that as of the time of the Study the State of New York ranked as the second (2nd) most expensive state to live in due to state and local taxes; the State of New Jersey ranked third (3rd); the Commonwealth of Massachusetts ranked fifth (5th), the State of Connecticut ranked sixth (6th); the State of Florida ranked seventh (7th); and the Commonwealth of Pennsylvania ranked eighth (8th).

From a residential development point of view, the Cap has made it (i) less attractive and more and more expensive for people to buy and own residential property in high-cost states because the amount a residential buyer is able to deduct in State/Commonwealth taxes and local taxes on such buyer’s federal tax return is limited by the Cap; and (ii) more attractive and less expensive in other states where, in the aggregate, the actual state taxes along with any applicable local taxes are less than the Cap. This is one of the reasons there has been a major population increase in Florida which is an expensive state to live in, but it does not impose state income tax, so this still makes the State of Florida popular.

Nonetheless, there have been proposals to include a full or partial repeal of the Cap in the upcoming Build Back Better Legislation. This, however, is a controversial measure on both sides of the aisle. According to the Study, most of the benefits from a repeal of the Cap would go to California, Connecticut, New Jersey, and New York with an average savings per taxpayer of $2,000.00. Moreover, according to a Tax Policy Center report, the top 20% of Americans may receive more than 96% of the benefit of a Cap repeal and this would affect only 9% of American households.

As of the date of this article, Congress has not passed any new legislation addressing this issue.

Our firm will continue to monitor the pending legislation and if and when there is passage of any legislation with respect to the Cap, we will post an additional client alert. In the meantime, some expensive states have offered taxpayers Cap workarounds. For example, some states have created charitable organizations that the taxpayer could contribute to in exchange for state tax credits. On the taxpayer’s federal income tax return, the taxpayer would be limited by the Cap but would be able to take a charitable deduction for the amount paid to the applicable charity. The IRS, however, has issued guidance opposing most of these workarounds. Taxpayers contemplating one of these strategies should consult with a tax advisor before doing so.


This alert should not be construed as legal advice or a legal opinion on any specific facts or circumstances. This alert is not intended to create, and receipt of it does not constitute, a lawyer-client relationship. The contents are intended for general informational purposes only, and you are urged to consult your attorney concerning any particular situation and any specific legal question you may have. We are working diligently to remain well informed and up to date on information and advisements as they become available. As such, please reach out to us if you need help addressing any of the issues discussed in this alert, or any other issues or concerns you may have relating to your business. We are ready to help guide you through these challenging times.

Unless expressly provided, this alert does not constitute written tax advice as described in 31 C.F.R. §10, et seq. and is not intended or written by us to be used and/or relied on as written tax advice for any purpose including, without limitation, the marketing of any transaction addressed herein. Any U.S. federal tax advice rendered by DarrowEverett LLP shall be conspicuously labeled as such, shall include a discussion of all relevant facts and circumstances, as well as of any representations, statements, findings, or agreements (including projections, financial forecasts, or appraisals) upon which we rely, applicable to transactions discussed therein in compliance with 31 C.F.R. §10.37, shall relate the applicable law and authorities to the facts, and shall set forth any applicable limits on the use of such advice.