The Treasury Department and the IRS are preparing regulations on the viability of tax workarounds adopted by several high-tax states. Some lawyers are questioning whether the agencies might set their sights on other states' tax credit programs, too.
The Tax Cuts and Jobs Act, which went into effect this year, capped the state and local tax (SALT) deduction at $10,000 that filers can claim on their federal tax returns.
New York, New Jersey and Connecticut recently passed laws to create a workaround: They will permit municipalities to establish charitable funds to pay for local services and offer property tax credits to incentivize homeowners to make contributions.
Those who donate to the funds can claim a charitable tax deduction on their federal returns, exceeding the $10,000 cap on SALT deductions.