Feds fight back against state attempts to thwart SALT limit

The Internal Revenue Service (IRS) along with the United States Department of Treasury recently issued regulations addressing state agency attempts to thwart the state and local tax deduction (SALT) limitation on federal tax returns.

What is the SALT limit? The SALT limit went into effect with the new tax law. The Tax Cuts and Jobs Act (TCJA) resulted in a $10,000 cap on the deduction. This cap was especially difficult for high tax states like New York, New Jersey, Connecticut and California.

What is the issue? The feds are voicing frustration with the attempts of state agencies to avoid this cap. One effort involved the development of a charitable fund. Taxpayers wishing to use this workaround could choose to donate to the charitable fund and deduct the donation from their state tax obligations.

The taxpayer could then also deduct this donation as a charitable contribution on the federal tax return — a deduction that did not have the $10,000 cap like the SALT deduction.

How did the IRS respond? The feds recently issued regulations requiring taxpayers who make a donation to a charitable contribution to deduct any state or local credits. So, if a taxpayer made a $15,000 contribution to the charitable fund and received a $12,000 credit for their state tax obligations they would only be able to deduct $3,000 as a charitable donation.

The agency states the move is in line with basic tax rules which do not allow a charitable deduction when the donor expects a tangible benefit in exchange for the donation.

The move shows the many issues taxpayers can encounter when trying to navigate the new tax law. Anyone that is contacted by the IRS in response to their tax filings and is concerned about a possible audit is wise to seek legal counsel to better ensure their rights are protected.

No Comments

Leave a comment
Comment Information
Email Our Team

Contact Us to Get Started Today

Located in the Washington, D.C area, we serve clients in the District of Columbia, Maryland and Northern Virginia, as well as across the country and overseas. For a free initial consultation, call 202-381-1261 or complete our brief online form.

Bold labels are required.

Contact Information

The use of the Internet or this form for communication with the firm or any individual member of the firm does not establish an attorney-client relationship. Confidential or time-sensitive information should not be sent through this form.


Privacy Policy

Six Convenient Office Locations in and around the DC Metropolitan Area

Washington, D.C.
1050 Connecticut Ave NW #500
Washington, D.C. 20036

Phone: 202-618-1873
Fax: 888-235-8405
Washington Law Office Map

Columbia Office
10440 Little Patuxent Parkway, Suite 300
Columbia, MD 21044

Phone: 202-618-1873
Phone: 410-497-5947
Fax: 888-235-8405
Columbia Law Office Map

Annapolis Office
839 Bestgate Road
Suite 400
Annapolis, MD 21401

Phone: 202-618-1873
Phone: 410-497-5947
Fax: 888-235-8405
Annapolis Law Office Map

Fairfax Office
8280 Willow Oaks Corporate Drive
Suite 600
Fairfax, VA 22031

Phone: 202-618-1873
Phone: 703-988-4817
Fax: 888-235-8405
Fairfax Law Office Map

Rockville Office
199 E. Montgomery Avenue
Suite 100
Rockville, MD 20850

Phone: 202-618-1873
Phone: 240-599-5009
Fax: 888-235-8405
Rockville Law Office Map

Baltimore Office
400 East Pratt Street
8th Floor
Baltimore, MD 21202

Phone: 202-618-1873
Phone: 443-743-3381
Fax: 888-235-8405
Baltimore Law Office Map