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High-Income Business Owners Escape $10,000 Tax Deduction Cap Using Path Built by States, Trump Administration

Congressional Democrats are debating whether increasing the $10,000 cap on the state and local tax deduction would benefit the rich too much, but some of America’s top earners—including private-equity managers and law firm partners—are already legally circumventing the cap on much of their income.

That is because state governments and the Trump administration blessed a cap workaround for owners of closely held businesses that is proliferating around the country. So far, about 20 states have enacted versions of it, including New York, California, Connecticut, New Jersey and Illinois.

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