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

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Former U.S. President Donald Trump on Nov. 15, 2022.

Eva Marie Uzcategui/Bloomberg via Getty Images

Former President Donald Trump paid hundreds of thousands of dollars in state and native taxes from 2015 through 2020, in keeping with income tax returns publicly released Friday by the House Ways and Means Committee.

But while the returns show associated tax deductions were capped at $10,000 a 12 months starting in 2018 — attributable to a tax law that took effect that 12 months — experts say Trump can have been capable of bypass the cap via a workaround involving certain business entities.

Doing so would have given him a much bigger federal tax break — and sidestepped a contentious tax policy in one among his signature legislative achievements, referred to as the Tax Cuts and Jobs Act, experts said.

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“Simply because there was a $10,000 cap, there are methods for him to get around that limit post-2017,” said Richard Winchester, a tax policy expert and associate law professor at Seton Hall University School of Law.

A spokesperson for President Trump didn’t return a request for comment.

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

The House Ways and Means Committee’s release of six years of Trump’s tax returns follows a lengthy fight over making them public.

State and native taxes — so-called SALT — may include property, income and sales tax. Trump paid at the very least $5 million in such taxes annually from 2015 through 2020, in keeping with a breakdown of itemized tax deductions listed on Schedule A of his income tax returns.

Prior to 2018, taxpayers generally got a dollar-for-dollar tax deduction for the state and native taxes they paid.

That tax profit was diluted or erased for some households attributable to the “alternative minimum tax,” a separate mechanism that goals to be certain that wealthy households pay at the very least a certain quantity of tax and stop them from overly leveraging certain deductions, just like the one for SALT.

It appears the choice minimum tax limited Trump’s ability to jot down off hundreds of thousands of dollars of state and native taxes from 2015 to 2017, some experts said.  

Then, in 2017, Republicans passed a tax law that rewrote major portions of the tax code for people and corporations.

The law imposed a $10,000 limit on SALT deductions starting in 2018 — a controversial measure that some claimed especially impacted individuals in high-tax, left-leaning states like California, Latest York and Latest Jersey.  

In 2018, Trump paid $10.5 million in state and native taxes, but was only capable of deduct $10,000 of the entire, for instance, 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 annually.

Latest state rules provide a SALT workaround

Nonetheless, the income tax returns don’t provide the complete picture, experts said.

Here’s why: Many states issued rules after 2017 that provide a workaround to certain business 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 every so often 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 a few LLCs after 2017. Schedule C of his income-tax returns list several such entities.

You simply have the tip of the iceberg here.

Martin Shenkman

attorney and CPA

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

Since 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 native tax payments — thereby sidestepping the $10,000 cap.

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

They’d only apply in states which have passed such laws and for businesses with taxable income.

“You possibly can’t say a technique or one other based on what you will have here if he did it,” Hal Terr, an authorized financial planner and tax partner at Withum, Smith and Brown, said of the tax returns released Friday by the House Ways and Means Committee.

Because the workaround only applies to certain business owners, it’s “something [Trump] would have gotten a profit from that almost all folks would not have,” said Martin Shenkman, a CPA and attorney who does tax and estate planning for high-net-worth clients.

“You simply have the tip of the iceberg here,” said Shenkman, who added that despite the discharge of Trump’s income tax returns, others like business, trust and gift tax returns haven’t been made public. “Much of what he does will remain a mystery.”

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