![]() ![]() Permits a pass-through entity to make an election to directly pay income taxes at the entity level.Requires a pass-through entity to directly pay income taxes at the entity level or.IRS Notice 2020-75 (the “Notice”), issued on November 9, 2020, provides that the IRS will issue proposed regulations to provide that state and local taxes paid directly by a pass-through entity in accordance with qualifying state or local laws will not be subject to (and do not count toward) the SALT Cap.Ī state or local law qualifies under the Notice if the law either: ![]() For pass-through entities, Oregon, like many other states, has a temporary workaround in place. Time will tell whether relief is forthcoming. While there has been talk by moderate Democrats that we will see some SALT relief, it has not appeared in any of the drafts of the pending tax legislation. House of Representatives, which reflects the Biden Administration’s tax plan, does not restore the SALT Cap to pre-TCJA levels, in whole or part. The SALT Cap generally applies to all state and local tax paid by an individual, including the individual’s share of any state and local taxes paid with respect to the income from a pass-through entity of which the individual is an owner.Īs we have been discussing, legislation pending in the U.S. The owners pay income taxes on their share of the entities’ income. Instead, income is passed through to the owners and reported on Schedules K-1. Pass-through entities generally do not pay income taxes. ![]() The Tax Cuts and Jobs Act imposed a cap on the amount of state and local tax (including property tax and income tax) that an individual may deduct from federal taxable income each year. ![]() However, it gets even better-SB 727 includes a refundable credit feature that may result in further tax savings for some owners of pass-through entities. For pass-through entities that make the election, their owners will potentially be able to deduct more than $10,000 of Oregon state and local taxes on the federal income tax return. In relevant part, SB 727 allows pass-through entities to make an annual election to pay Oregon state and local taxes at the entity level. Interestingly, SB 727 sunsets at the end of 2023. In general, it applies to tax years beginning on or after January 1, 2022. On June 19, 2021, Oregon Governor Kate Brown signed SB 727 into law, effective September 25, 2021. Nine days later, the House passed the legislation without changes. On June 17, 2021, after some amendments, SB 727 was passed by the Senate and referred to the House. SB 727 is Oregon’s response to the IRS announcement (see discussion below). On February 4, 2021, Senate Bill 727 (“SB 727”) was introduced in the Oregon Legislature. Last fall, the IRS announced, with respect to pass-through entities (LLCs or other entities taxed as partnerships or S corporations), that, if state law allows or requires the entity itself to pay state and local taxes (which normally pass through and are paid by the ultimate owners of the entity), the entity will not be subject to the $10,000 state and local taxes deductibility cap (the “SALT Cap”). ![]()
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