IRS Notice 2020-75 (released November 9, 2020) indicates that proposed regulations will be issued on the deductibility of state and local tax payments made by passthrough entities.
Notice 2020-75 [PDF 108 KB] provides that amounts paid by a passthrough entity for the state and local taxes—as described in IRC section 164(b)(2)—will be deductible by an individual owner of the passthrough entity, without regard to whether the state tax is mandatory or elective.
For tax years beginning after December 31, 2017, and before January 1, 2026, the 2017 U.S. tax law (Pub. L. No. 115-97) or the law that is often referred to as the “Tax Cuts and Jobs Act” (TCJA) limits an individual’s itemized deduction for state and local taxes paid to $10,000—referred to as the “SALT limitation.”
In response, a handful of states adopted passthrough entity tax regimes that were intended to bypass the $10,000 SALT limitation by imposing a tax directly on the passthrough entity and, correspondingly, providing the owners of these passthrough entities with a tax credit or deduction that would fully or partially mitigate the additional expense.
Below is a summary of the states that have these laws.
For more information, contact a KPMG State and Local Tax professional:
Brad Wilhelmson | +1 312 665-2076 | firstname.lastname@example.org
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