Appeals court likely to uphold cap on deductions for state and local taxes

Recently, attorneys for New York, New Jersey and Connecticut appeared before a three judge panel of the Court of Appeals to appeal a District Court's decision to throw out a lawsuit filed to challenge the cap on deductions for state and local taxes.  The cap was enacted as part of President Trump's 2017 tax reform package.  The attorneys faced tough questioning from the panel about whether courts have the power to interfere with the cap.

Some taxes, such as Connecticut, have enacted laws that permit a business' owner to avoid or minimize the cap on state and local taxes.  Connecticut's pass-through entity tax is an example.  The IRS approved the pass-through entity tax workaround in early November 2020.