State Challenge to SALT Cap Rule Should Be Barred, Treasury Says

New York, New Jersey, and Connecticut should be barred from challenging a Treasury Department rule that stops their attempted circumvention of the $10,000 cap on state and local tax deductions, the federal government told the Second Circuit.

Treasury’s rule limits federal deductions when residents donate to municipality and state-affiliated charities and earn equivalent credits on their state and local taxes, while also deducting the same charitable contribution from their federal taxes under IRC Section 170. Lawmakers in New York, New Jersey, and Connecticut—each having many residents whose SALT liability exceeds $10,000—sought to establish such credit programs after Congress capped SALT ...