A Compromise on the State and Local Tax Deduction?
There has not been much progress in the last week with respect to President Trump’s plan for tax reform, except with respect to the state and local tax deduction (“SALT deduction”). The debate over the future availability of the SALT deduction has been an initial obstacle for Republican lawmakers attempting to reach an agreement on tax reform. Part 2 of “Tax Reform Now” discussed why potentially repealing the SALT deduction is a contentious issue. Instead of an outright repeal of the SALT deduction, Republican lawmakers are now exploring other options. One option gaining traction is making the SALT deduction available to taxpayers earning less than a specified amount of income. Taxpayers earning more than this income threshold would no longer be able to take the SALT deduction. Although an exact amount has not been specified, recent discussions have an amount somewhere between $200,000 and $400,000 as the income threshold. However, the final decision regarding the SALT deduction will not be known until the House of Representatives introduces its tax bill.
2704 Proposed Regulation
Although not related to the current tax reform initiative in Washington, we wanted to let you know that on October 3, 2017, the Treasury Department withdrew Proposed Treasury Regulations to Section 2704 of the Internal Revenue Code issued last year. Had they been finalized, the Proposed Regulation would have reduced or eliminated the ability to use minority-interest and marketability discounts for transfers of interests in family controlled entities. The Treasury Department withdrew the Proposed Regulation citing, “the Proposed Regulation’s approach to the problem of artificial valuation discounts is unworkable.”
We hope this update has been helpful. As always, please let us know if you have any questions.