Suffolk County Executive Steve Bellone announced a plan last Tuesday that he says will protect Suffolk County taxpayers from the new $10,000 cap on state and local tax deductions.
Under the proposal, the county would create a charitable reserve fund that residents could make unrestricted contributions to and in turn be able to claim a credit on up to 95 percent on their tax bill.
The county resolution complies with Gov. Andrew Cuomo’s New York State-passed provision to allow taxpayers to make a voluntary charitable contribution to a charitable gift reserve fund, so long as such fund is established by a given local government.
But in August, the Internal Revenue Service issued regulations on how charitable contribution deductions will impact corresponding state and local tax credits. According to the regulations, a taxpayer who makes payments to an entity eligible to receive tax deductible contributions must reduce their charitable deduction by the amount of any state or local tax credit the taxpayer receives or expects to receive.
For example, if a state grants a 70 percent state tax credit and the taxpayer pays $1,000 to an eligible entity, the taxpayer receives a $700 state tax credit. The taxpayer must reduce the $1,000 contribution by the $700 state tax credit, leaving an allowable contribution deduction of $300 on the taxpayer’s federal income tax return.
The county executive has spoken out against the draft IRS regulations, which have not been finalized. If necessary, Mr. Bellone is prepared to pursue legal action against the IRS.
“My message to the IRS is clear: if you try to stop us from protecting our SALT deductions, we will see you in court,” Mr. Bellone said during a press conference Tuesday.
But some county officials are hesitant about the proposal, citing costs associated with battling the IRS. “It is my understanding the IRS has ruled against this work around, which now leaves us with only a federal legislative solution,” Democrat DuWayne Gregory, presiding officer of the County Legislature said Monday. “I’m looking at all avenues to protect taxpayers from the elimination of the SALT deduction.”
High-tax states like New York were disproportionately impacted by the federal Tax Cuts and Jobs Act of 2017, which established the deduction limit.
The combined amount claimed for these taxes may not exceed $10,000, or $5,000 for married taxpayers filing separately. Prior to the new federal tax law, SALT deductions were not capped.
As part of the county executive’s response to the SALT cap, Mr. Bellone has pledged to freeze mortgage fees in place for three years, unveiled an informational webpage to keep residents informed, and has directed the Suffolk County Department of Economic Development and Planning to conduct an economic analysis of the SALT impact in Suffolk County after the April 15 tax deadline.
Mr. Bellone also said he supports the governor’s plan to make the 2 percent property tax cap permanent and launched an online petition in response to the SALT deduction plan last year — which has over 6,000 signatures.
In Washington, Congressman Lee Zeldin (R-Shirley) has cosponsored legislation to reinstate the full SALT deduction, spearheaded by fellow New York Reps. Peter King, Tom Suozzi and Nita Lowey.
He said that, while there were positives to the tax overhaul, such as expanding medical and student deductions and the doubling of the Child Tax Credit, the SALT cap represents a “geographic” redistribution of wealth.
“The $10,000 cap on State and Local Tax Deductions was a punch in the gut to the middle-class Long Islanders who already subsidize so many other states around the nation,” Mr. Zeldin said in a statement Monday.
He also noted that it’s worth considering how increased paychecks in 2018 may impact tax returns — and that SALT deductions were higher since state and local taxes are higher as well. “All levels of government have a role to play in providing tax relief,” the congressman said.
John Cameron, who chairs the Long Island Regional Planning Council, said the SALT cap has exacerbated ongoing issues with development.
“One of the greatest impediments to Long Island’s future sustainability is its high property tax burden,” he said in a statement. “[The council] encourages all our elected officials to work together to ensure that the heavy burden of federal taxes is not inequitably placed on high cost of living areas such as Long Island.”