New York Leads Lawsuit against Federal Government over Cap on SALT Deduction

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The State of New York led the filing of a lawsuit against the federal government to protect taxpayers from the negative impact of the cap on state and local tax (SALT) deduction.

Under the Tax Cuts and Jobs Act, starting this year, an individual or married taxpayers filing jointly can only deduct $10,000 for their real and personal property taxes, income or sales taxes. The SALT deduction for married taxpayers filing separately is limited to $5,000.

Arguments Against the Cap on SALT Deduction

In the lawsuit, New York together with Connecticut, Maryland and New Jersey argued that the drastic cut on SALT deduction will “increase the federal tax liability of millions of taxpayers” and also decrease home values in their states. As a result, homeowners will lose the equity that they depend on to finance their retirement, school tuition and more.

Additionally, the plaintiff states contended that the cap interferes with their sovereign authority to make decisions on taxation and fiscal policies.