Suffolk County Executive Steve Bellone on Tuesday unveiled a plan he thinks will help local homeowners avoid the new $10,000 federal cap on deductions for state and local taxes.
But one state tax watchdog isn’t sure it’s legal and one key county legislator expressed strong concerns about spending heavy legal fees to fight for it in court.
The Bellone proposal centers on the idea of rebranding property tax payments as charitable contributions. His plan would permit homeowners, in lieu of paying property taxes, to pay an equivalent amount into a charitable fund, then claim those payments as charitable federal tax deductions.
It mirrors a proposal offered by Gov. Andrew M. Cuomo — one that the Internal Revenue Service already has said is illegal and won’t be approved. Bellone said he’s submitting legislation to the County Legislature to establish the “Charitable Gift Trust Fund” and stands ready to challenge the IRS in court. He says it would make the first American county to do so.
“We will make clear to the IRS that we are serious about protecting families in Suffolk County, that we will do everything in our power to fight back against legislation that will hurt families and our economy,” Bellone said, according to prepared remarks announcing his initiative. “My message to the IRS is clear: If you try to stop us from protecting our SALT deductions, we will see you in court.”
In 2017, President Donald Trump and a Republican-controlled Congress overhauled the federal tax code. Among the changes, they capped the amount of deduction a taxpayer can take for state and local taxes at $10,000. They also doubled the standard deduction, making it $24,000 for married couples, which analysts said would negate the impact of the SALT limit for many homeowners.
Cuomo, as well as several other governors, proposed a charitable deduction “work around” very similar to Bellone’s. But in August 2018, U.S. Treasury Secretary Steve Mnuchin said the IRS would prevent “attempts to convert tax payments into charitable contributions.”
Although the IRS ruling hasn’t formally been made final yet and Bellone is promising a legal fight, E.J. McMahon of the Empire Center, an anti-tax think tank, said Suffolk taxpayers should be skeptical of putting money into the proposed charitable fund.
“Any contribution to something like the Suffolk County fund is by no means guaranteed a tax deduction, so the message to taxpayers is don’t count on it,” McMahon said in an email. He called Bellone’s plan “nothing new — basically a Suffolk echo of Cuomo a year ago.”
Further, DuWayne Gregory, a Democrat and presiding officer of the County Legislature, said while he favors an offset of the SALT cap, the issue of the “work around” appears settled and he was leery about “getting involved in spending a lot of money” on a legal battle.
“The IRS said you can’t do it, so I’m surprised. Unless there is some new guidance, I’m not sure we can” implement such a plan, Gregory said. “To me, it’s a settled issue. But we can look at it.”
County Legis. Tom Cilmi, head of the Republican conference, called Bellone’s proposal “another election-year charade.”
“It seems suspect that he’s doing this after the governor tried it and after the IRS said you can’t do it,” Cilmi said.
Bellone said the program would permit homeowners to make unrestricted contributions to the charitable fund and would be able to claim a credit against their property taxes up to 95 percent of the contribution. A business group applauded the county executive’s proposal.
“As a region, we can remain idle and hope the loss of SALT will have little impact on our economy or we can proactively seek to mitigate the crippling economic effects on Long Island,” said Kyle Strober, executive director of the Association for a Better Long Island, a developers’ group.