Menu
Tax Notes logo

Federal Coronavirus Bill Would Temporarily Eliminate SALT Cap

Posted on May 13, 2020

The $10,000 state and local tax deduction cap would be temporarily eliminated under draft federal legislation by House Democrats.

The draft emergency supplemental appropriation for fiscal 2020, released May 12, would eliminate the cap enacted under the Tax Cuts and Jobs Act for tax years 2020 and 2021. The more than 1,800-page bill also includes additional direct payments of up to $6,000 per household as response to the coronavirus pandemic.

New York Gov. Andrew Cuomo (D) said during an April 11 briefing on the pandemic that repealing the cap would help New York and other states most affected by revenue shortfalls.

In an interview with The New York Times published March 30, House Speaker Nancy Pelosi, D-Calif., floated the idea of retroactively lifting the cap, but was met with criticism that it would mostly benefit high-income earners.

The TCJA enacted limitations on taxpayers’ ability to deduct net operating losses — eliminating NOL carrybacks, limiting NOLs to 80 percent of taxable income, and allowing carryforwards indefinitely — and excess business losses, prohibiting taxpayers other than C corporations from deducting excess business losses for tax years beginning after December 31, 2017, and ending before January 1, 2026.

But provisions in the Coronavirus Aid, Relief, and Economic Security (CARES) Act (P.L. 116-136) have temporarily eliminated the 80 percent limitation on NOLs and allow federal taxpayers to carry back NOLs from 2018, 2019, and 2020 for five years. The CARES Act also has retroactively eliminated the excess business loss limitation for non-C corporation taxpayers for tax years beginning before January 1, 2021.

Under the draft bill released May 12, federal taxpayers would be allowed to carry back NOLs from 2019 and 2020 but not 2018. The bill would also restore the limitation on excess business losses of non-corporate taxpayers and make it permanent. New York state and New York City decoupled from the CARES Act's NOL provisions with the enacted budget signed by Cuomo April 3.

The draft bill would also allow federal, state, and local governments to receive emergency paid leave payroll tax credits by amending the Families First Coronavirus Response Act (P.L. 116-127).

Legislation introduced April 28 by Rep. Bradley Scott Schneider, D-Ill., also would authorize governments to receive tax credits for paid sick, family, and medical leave. According to an April 28 release, the bill had bipartisan support with 108 cosponsors and would help state and local governments cover costs associated with paid leave.

Copy RID