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

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

However whereas the returns present related tax deductions have been capped at $10,000 a 12 months beginning in 2018 — as a result of a tax legislation that took impact that 12 months — specialists say Trump might have been in a position to bypass the cap through a workaround involving sure enterprise entities.

Doing so would have given him an even bigger federal tax break — and sidestepped a contentious tax coverage in certainly one of his signature legislative achievements, generally known as the Tax Cuts and Jobs Act, specialists stated.

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“Simply because there was a $10,000 cap, there are methods for him to get round that restrict post-2017,” stated Richard Winchester, a tax coverage professional and affiliate legislation professor at Seton Corridor College College of Regulation.

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

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

State and native taxes — so-called SALT — might embody property, earnings and gross sales tax. Trump paid no less than $5 million in such taxes annually from 2015 via 2020, in accordance with a breakdown of itemized tax deductions listed on Schedule A of his earnings tax returns.

Previous to 2018, taxpayers typically bought 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 “different minimal tax,” a separate mechanism that goals to make sure that rich households pay no less than 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 capacity to put in writing off tens of millions of {dollars} of state and native taxes from 2015 to 2017, some specialists stated.  

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

The legislation imposed a $10,000 restrict on SALT deductions beginning in 2018 — a controversial measure that some claimed particularly impacted people in high-tax, left-leaning states like California, New York and New Jersey.  

In 2018, Trump paid $10.5 million in state and native taxes, however was solely in a position to deduct $10,000 of the full, for instance, tax data present. The dynamic was related in 2019 and 2020, when Trump listed $8.4 million and $8.5 million of SALT on his earnings tax returns, respectively, however may solely write off $10,000 annually.

Nonetheless, the earnings tax returns do not present the total image, specialists stated.

This is why: Many states issued guidelines after 2017 that provide a workaround to sure enterprise house owners impacted by the $10,000 SALT cap.

“He put on this [$10,000] limitation on SALT within the Tax Cuts and Jobs Act, and possibly has claimed occasionally that it actually damage him,” stated Robert Lord, senior advisor of tax coverage at Patriotic Millionaires, a left-leaning tax group. “However did it actually damage him?”

Trump doubtless took benefit of the workarounds, tax specialists stated.

The workarounds would apply to enterprise earnings Trump derived from partnerships, S firms and a few LLCs after 2017. Schedule C of his income-tax returns checklist a number of such entities.

At a excessive degree, the principles — which the IRS greenlighted in 2020 — permit these enterprise entities to put in writing off state and native tax funds from their enterprise earnings. These entities aren’t topic to a $10,000 cap.

As a result of the earnings from these “pass-through” companies circulation via to their house owners’ particular person tax returns, the enterprise house owners successfully get a tax break for these state and native tax funds — thereby sidestepping the $10,000 cap.

Whereas it is doubtless Trump leveraged these tax guidelines, it is not possible to know with out further data like enterprise tax returns if he did and the extent to which he might have benefited, specialists stated.

They might solely apply in states which have handed such legal guidelines and for companies with taxable earnings.

“You may’t say a technique or one other based mostly on what you could have right here if he did it,” Hal Terr, a licensed monetary planner and tax associate at Withum, Smith and Brown, stated 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 “one thing [Trump] would have gotten a profit from that almost all people would not have,” stated Martin Shenkman, a CPA and legal professional who does tax and property planning for high-net-worth shoppers.

“You solely have the tip of the iceberg right here,” stated Shenkman, who added that regardless of the discharge of Trump’s earnings tax returns, others like enterprise, belief and reward tax returns haven’t been made public. “A lot of what he does will stay a thriller.”