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

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Former US President Donald Trump on November 15, 2022.

Eva Marie Uzcategui/Bloomberg via Getty Images

Former President Donald Trump paid millions of dollars in state and local taxes from 2015 to 2020, according to income tax returns released Friday by the House Ways and Means Committee.

But while tax returns show associated tax deductions were capped at $10,000 a year as of 2018 — due to a tax law that went into effect this year — experts say Trump may be circumventing the cap through a workaround with certain business entities could.

That would have given it a bigger federal tax break – and sidestepped a controversial tax policy in one of its signature legislative achievements, known as the Tax Cuts and Jobs Act, experts said.

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“Just because there was a $10,000 cap, there are ways for him to circumvent that cap after 2017,” said Richard Winchester, a tax policy expert and associate professor of law at Seton Hall University School of Law.

A spokesman for President Trump did not respond to 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 long battle to get them released.

State and local taxes—known as SALT—can include property, income, and sales taxes. Trump paid at least $5 million in such taxes each year from 2015 through 2020, according to a breakdown of individual tax deductions listed in Appendix A of his income tax returns.

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

This tax benefit has been diluted or erased for some households due to the “alternative minimum tax,” a separate mechanism designed to ensure wealthy households pay at least a certain amount of tax and prevent them from overusing certain deductions, such as SALT.

It appears the alternative minimum tax limited Trump’s ability to write off millions of dollars in state and local taxes from 2015 to 2017, some experts said.

Then, in 2017, Republicans passed a tax bill that rewrote much of the tax code for individuals and businesses.

The law put a $10,000 cap on SALT deductions beginning in 2018 — a controversial measure that some claimed particularly affected individuals in left-leaning, high-tax states like California, New York and New Jersey.

In 2018, Trump paid $10.5 million in state and local taxes but was only able to deduct $10,000 from the total, tax records show. The dynamics were similar in 2019 and 2020, when Trump reported SALTs of $8.4 million and $8.5 million, respectively, on his income tax returns, but was only able to write off $10,000 each year.

New state rules provide a SALT workaround

However, income tax returns don’t paint the full picture, experts say.

Here’s why: Many states enacted rules after 2017 that provide a workaround for certain business owners impacted by the $10,000 SALT limit.

“He put that in [$10,000] restriction of SALT in the Tax Cuts and Employment Act and has probably claimed on occasion that it really hurt him,” said Robert Lord, senior tax policy adviser at Patriotic Millionaires, a left-leaning tax group. “But did it really do any harm? him?”

Trump likely exploited the workarounds, tax experts said.

The workarounds would apply to post-2017 business income Trump receives from partnerships, S corporations, and some LLCs. Several such companies are listed on Schedule C of his income tax returns.

You’ve only got the tip of the iceberg here.

Martin Schenkman

lawyer and accountant

At a high level, the rules — which the IRS gave the green light to in 2020 — allow these companies to write off state and local tax payments from their business income. These companies are not subject to a $10,000 cap.

Because income from these “pass through” businesses goes on their owners’ individual tax returns, business owners effectively receive a tax break on these state and local tax payments — bypassing the $10,000 cap.

While it’s likely Trump took advantage of those tax rules, without additional information like corporate tax returns, it’s impossible to know if he did and how much he may have benefited, experts said.

They would apply only in states that have passed such laws and to corporations with taxable income.

“You can’t tell if he did it based on what you have here,” Hal Terr, a certified financial planner and tax partner at Withum, Smith and Brown, said of the House Ways tax returns and appropriations committee released Friday .

Since the workaround only applies to certain business owners, it’s “something [Trump] would have gained an advantage that most people would not have,” said Martin Shenkman, a chartered accountant and attorney who performs tax and estate planning for high net worth clients.

“You have just the tip of the iceberg here,” Shenkman said, adding that despite the release of Trump’s income tax returns, others such as business, trust and gift tax returns have not been released. “A lot of what he does will remain a mystery.”