NY Budget Deal Includes Pass-Through Entity SALT Cap Workaround
An outcome of the 2022 FY New York State budget, passed on April 7, 2021, includes a circumvention of the federal limit on State and Local Tax (SALT) deductions. The SALT cap was previously created as a result of a 2017 tax law and created a $10,000 limit on all SALT deductions. The budget created by NY Governor Andrew Cuomo and legislative leaders will allow pass-through businesses to pay taxes at the entity level. The tax would be counterbalanced by an individual income tax credit equivalent to the entity level tax. This practice will also be implemented by New Jersey and Connecticut.
- This provision was originally part of Governor Cuomo’s initial January budget proposal
- The SALT cap circumvention comes amid calls for President Biden’s infrastructure proposal to remove the SALT cap
- In November 2020, the IRS said it would issue rules allowing for a pass-through entity workaround
- The 2021 New York budget also calls for decoupling New York State and city corporate and personal income taxes from opportunity zones. The incentive was fashioned in 2017 and offers capital gains tax relief in exchange for investing in particular geographic regions.
Many questions remain as to the implications of the passing of New York's new budget. Stay tuned to Lumsden McCormick, where we will share additional clarification as it is made available.