Senate Republicans are working to keep a higher state and local tax (SALT) deduction in their budget bill, a major move after months of back-and-forth.
According to a report by Journal of Accountancy, the Senate's updated version, like the House of Representatives, would raise the SALT cap to $40,000 and adjust for inflation, a measure the AICPA has strongly supported for maintaining consistency between pass-throughs and corporations. Earlier drafts threatened to squeeze accounting and other professional firms that rely on passthrough entities to manage state tax burdens, but the current Senate language drops those limits.
The bill's Senate version, according to another piece from the Journal, would temporarily raise the federal deduction limit for SALT to $40,000 from $10,000 while adjusting it for inflation. The cap would be $40,400 next year, and then it would rise by 1% annually until 2029. Beginning in 2030, it would go back to its current amount of $10,000.
The House version passed last month also raised the SALT cap to $40,000, but included provisions that limited taxpayers’ attempt to work around the cap such as not letting specified service trades or businesses (SSTBs) to deduct SALT taxes. This provision would make state passthrough entity taxes (PTETs) less helpful in circumventing the SALT cap.
Meanwhile, thee Senate Budget Committee’s version of the bill just raises the SALT cap and does not try to limit or address the different workarounds that are available to taxpayers to avoid the SALT cap.
After initial doubt about whether the bill had enough support among the Senate’s Republican majority, the Senate voted 51-49 on Jun. 28 to take up the bill. If the bill passes the Senate, it would then go back to the House for another vote. The Senate is still in the process of voting on various amendments to the budget bill.
Beyond SALT, the bill would lock in many of the Trump-era tax cuts, making them permanent, while adding breaks for tips, overtime pay, and certain seniors. The qualified business income (QBI) deduction would stay at 20 percent, and the child tax credit would get a boost to $2,200 per child. There are also permanent expansions to the standard deduction and estate tax exemption. .
Other provisions in the bill could hit everything from clean energy credits to how businesses interest is deducted. The Journal of Accountancy flagged changes like making bonus depreciation permanent and retroactively expanding Sec. 179 expensing to $2.5 million, as well as measures to curb foreign tax maneuvers.