The Treasury Department and IRS on Tuesday issued final regulations aimed at preventing residents of largely blue states from circumventing the GOP tax law’s cap on the state and local tax (SALT) deduction.

The final rules come after Treasury issued proposed regulations on the topic last August.

The tax law President Trump Donald John TrumpSteele Dossier sub-source was subject of FBI counterintelligence probe Pelosi slams Trump executive order on pre-existing conditions: It 'isn't worth the paper it's signed on' Trump 'no longer angry' at Romney because of Supreme Court stance MORE signed in December 2017 caps the SALT deduction — or the amount of state and local taxes someone can deduct from their taxable income on their federal tax return — at $10,000. The cap has been one of the most controversial provisions in the law, with politicians in high-tax, Democratic-leaning states arguing that it hurts many of their residents who previously were able to deduct higher amounts. Supporters, however, argue the cap helps to prevent the tax code from subsidizing high state taxes, and they note that most people in high-tax states still received a tax cut under the 2017 law.

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Some Democratic-leaning states took steps or considered taking steps to try to get around the SALT deduction cap by passing legislation designed to convert state and local taxes to charitable contributions. Under the workarounds, taxpayers could donate to state and local funds and receive tax credits against their state and local taxes. The intention was for the taxpayers to then deduct the donations as charitable contributions on their federal returns, which aren’t capped.

But under the final regulations, taxpayers would be able to receive a federal deduction only for a charitable contribution amount that is greater than the amount of the tax credits they received. For example, if a taxpayer donated $1,000 to a state fund and received a 70 percent credit against his or her state taxes, the taxpayer could claim a federal charitable tax deduction of only $300, Treasury said.

The regulations apply to both donation and tax credit programs created in response to Trump’s tax law and similarly structured programs created before the law was enacted — such as programs in red states where taxpayers can receive state tax credits for donating to programs that provide scholarships to private schools.

During a public hearing on the proposed version of the rules last fall, supporters of private schools pushed the IRS to limit the scope of the rules so they would apply only to cases where taxpayers made contributions for public purposes or would exempt donations to tax credit programs that were created before the enactment of the GOP tax law. Treasury and the IRS did not take those actions.

Along with the final rules, Treasury and the IRS issued a notice aimed at preventing taxpayers who itemize deductions on their federal tax returns, have less than $10,000 in state and local taxes, and donate to state tax credit programs from being hurt by the final regulations.

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The notice — which applies to donations to state charitable funds and private nonprofits — provides that taxpayers who make charitable contributions and are prevented from taking a full charitable tax deduction because of the final regulations can choose to take a state and local tax deduction up to the amount of the state tax credit. That deduction would still be subject to the SALT deduction cap.

"Not surprisingly, the Trump Administration is once again taking a swipe at New Jersey’s middle class taxpayers," he said in a statement. "The IRS has allowed these charitable funds for decades and is only now banning them because states like New Jersey sought to utilize them and establish its own."

David L. Thompson, vice president of public policy for the National Council of Nonprofits, said that “wherever you are in the country or on the political spectrum, there is something to upset everyone in the IRS rule released today.”

“It blocks SALT workarounds, it limits the value of state credits, and, even in stepping back from a very harsh draft proposal, it caused taxpayers during the last months of 2018 not to make donations to worthy and needed work of charitable nonprofits in communities throughout the country,” he said.