SALT Cap Bypass Appeal Challenges Move to Boost Federal Coffers

Three states challenging a Treasury rule that curbs their programs to circumvent the $10,000 cap on state and local tax deductions are set to argue in federal appeals court on Thursday in a case that could lower federal tax revenue to the benefit of high earners.

New York, New Jersey, and Connecticut—which have relatively high SALT obligations and wealthy residents who would benefit from greater SALT deductions—developed workarounds to the cap that took advantage of the federal income tax deduction for charitable donations.

But Treasury’s rule limits the available charitable contribution deduction where the donor earned equivalent SALT credits for ...