The IRS proposed Monday, Nov. 9, new regulations to clarify that partnerships and S corporations are not subject to state and local tax (SALT) deduction limitations.
Under Notice 2020-75, states that have entity level elections to pay owners’ state tax from the entity, such as Wisconsin, will permit the state tax payments at the entity level as part of the ordinary income (loss) of the entity. As a result, these entities are not subject to the $10,000 SALT limitation established by the Tax Cuts and Jobs Act.
The notice also allows taxpayers to apply the rules to specified income tax payments made in a taxable year of a partnership or an S corporation ending after Dec. 31, 2017, and before the date the Federal Register publishes the proposed regulations.