July 19, 2018

On July 17, four American states, Connecticut, New York, Maryland, and New Jersey, filed a lawsuit to withdraw the federal government’s new $10,000 limit on the state and local tax deduction.

The 2017 President Trump’s tax reform only benefited the wealthy Americans and cut the corporate tax rate. The tax policy change in 2017 showed that deductions were limited to $10,000 for individual and taxpayers who filed jointly for the local property taxes and state taxes. For married couples, the limitation was $5,000 to file separately.

The four states claimed that this new cap might cause the difficulty to maintain the fiscal policies for Connecticut and other states. Taxpayers in Connecticut and other states would be hurt unevenly by this new cap. The four states also asserted this new cap would influence housing price, spending, job market, and hinder the ability to pay for public services such as schools, hospitals, and constructions.

According to the statement of Tome Corrie, a New York lawyer who leads the state and local tax group at the accounting corporation Friedman LLP, the new cap already damaged the real-estate market and depressed the economic market. Some local government even revised the policies in order to allow homeowners to prepay for 2018, especially for those who pay for the highest property tax rate.

The Treasury Department proposed some regulations to stop states from evading the cap in May. However, Connecticut, New York, and New Jersey had already prepared some methods for taxpayers to deduct by charitable contributions.