Trump tax returns show former president was subject to $10,000 SALT cap — but experts say he may have sidestepped the limit

Personal Finance

Former U.S. President Donald Trump on Nov. 15, 2022.
Eva Marie Uzcategui/Bloomberg via Getty Images

Former President Donald Trump paid millions of dollars in state and local taxes from 2015 through 2020, according to 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 year starting in 2018 — due to a tax law that took effect that year — experts say Trump may have been able to bypass the cap via a workaround involving certain business entities.

Doing so would have given him a bigger federal tax break — and sidestepped a contentious tax policy in one of his 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 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 local taxes — so-called SALT — may include property, income and sales tax. Trump paid at least $5 million in such taxes each year from 2015 through 2020, according to 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 local taxes they paid.

That tax benefit was diluted or erased for some households due to the “alternative minimum tax,” a separate mechanism that aims to ensure that wealthy households pay at least a certain amount of tax and prevent them from overly leveraging certain deductions, like the one for SALT.

It appears the alternative minimum tax limited Trump’s ability to write off millions of dollars of state and local 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 individuals 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, 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 of the total, for example, 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 each year.

New state rules provide a SALT workaround

However, the income tax returns don’t provide the full picture, experts said.

Here’s why: Many states issued rules after 2017 that offer a workaround to certain business owners impacted by the $10,000 SALT cap.

“He put in this [$10,000] limitation on SALT in the Tax Cuts and Jobs Act, and probably has claimed on occasion 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 some LLCs after 2017. Schedule C of his income-tax returns list several such entities.

You only have the tip of the iceberg here.
Martin Shenkman
attorney and CPA

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

Because 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 local tax payments — thereby sidestepping the $10,000 cap.

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

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

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

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

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

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