California Enacts Workaround of Limitation on Federal Deduction for State and Local Taxes

In July 2021, Governor Gavin Newsom signed Assembly Bill 150 (AB 150), which enacted a workaround for the federal $10,000 cap on personal income tax deductions for state and local taxes (SALT). Under the law, certain business entities (called pass-through entities) may elect to pay an entity-level state income tax and their owners can claim a credit on their personal income taxes. The SALT cap had been enacted by the federal Tax Cuts and Jobs Act in 2017. Based on complaints about the restrictiveness of the new law, California lawmakers will consider an expansion to the workaround in 2022. See CPA Journal, Bloomberg Tax.