Displaying items by tag: taxes

(New York)

At the end of August, the IRS closed the door on the numerous high-tax states that were trying to classify their residents’ taxes as charitable gifts so as to make them deductible. That moved slammed the door of options shut for New York and New Jersey residents. However, the IRS didn’t close the door to other workarounds, and Connecticut apparently has a favorable model that specifically applies to pass-through entities. The workaround allows full deduction to the previous tax level for users through an income credit system on taxes paid.

FINSUM: One wonders if the IRS will just move on to shutting these programs down or whether this is a model that other states can build on.

(Washington)

By far the biggest focus of the recent tax package has been its limiting of SALT deductions to just $10,000. The current implementation of the rule was considered phase one by Republicans, with phase two—making the changes permanent—supposed to happen this fall. However, given how tight the congressional races are, including in high tax states like New York, New Jersey, Minnesota, and Illinois, many Republicans are now considering delaying the vote so that sitting representatives don’t have to take a stand on the package.

FINSUM: The SALT limits are wildly unpopular in many locations, and the Republicans are rightfully worried that pushing for making them permanent could cost them some seats. Will this eventually lead to the repeal of the rule?

(New York)

The IRS just ended the best loophole in town for high income residents of high tax states like New York, California, Connecticut, New Jersey and Washington DC. Many high tax states had been working a loophole where residents could categorize their tax payments as charity donations, allowing them to deduct it from their taxes. However, the IRS has now closed that loophole effective today, meaning there is no way around the $10,000 SALT deduction limit.

FINSUM: It is no surprise home sales in the northeast are plummeting, as this is a serious economic issue for retaining the wealthy, and even upper middle class.

(New York)

While some New Yorkers prepaid their property taxes last year in an effort to offset the decline of SALT deductions this year, others weren’t so proactive. Now that Washington has blocked states’ ability to work a loophole around classifying taxes as charitable giving, residents of high tax states may have a small window of opportunity—just 4 days—to avoid full taxes. The new regulations will take effect on August 27th, which means residents have until then to donate to the tax-charity funds which have been established.

FINSUM: Such last minute payments could be challenged after the fact, but considering the effective date of the new regulations, they seem like they would go through.

(New York)

When the Republican tax reform package came out last year, there were fears that the changes could cause weakness in the muni market. However, while those potential long-term challenges remain, the reality is that the tax changes have helped the muni market considerably. The reason why is that the lack of SALT deductions means that many more investors have a strong inventive to buy muni bonds. This has kept yields low and demand robust, as for a high income couple in states like New York, a local muni bond yielding 3% is equivalent to a taxable corporate bond yielding over 6%.

FINSUM: Given the way that the new tax package heavily incentivizes muni income, we expect demand and prices to remain robust.