About 11,200 properties would be impacted by a new tax in New York City.gettyThere’s been a surprising amount of talk in recent weeks about New York City’s new pied-à-terre tax, given how many properties might actually be affected.New York Governor Kathy Hochul announced a revenue estimate of $500 million from 13,000 “second homes” valued at least $5 million. However, according to the state’s Comptroller, revenue will likely be collected from a little over 11,200 properties. For context, New York City currently boasts about 3.74 million housing units, according to the 2024 Census estimate, of which about 3.38 million are occupied. So the units subject to the tax amount to only 0.3% of the city's housing stock. (NYC itself accounts for about 2.5% of all U.S. housing units.) Across the United States, there are about 146.7 million housing units, so the tax would affect about 0.0076% of all U.S. housing units.Still, conversations about the tax are making headlines and filling social media spaces. President Trump has also taken an interest, claiming that he will kill it.The problem? As Andrew Leahey writes, President Trump has few options to block the tax on his own. He cannot simply nullify a state tax by executive order, and federal litigation would face significant procedural and constitutional hurdles, including the Tax Injunction Act. The tax is also structured around whether a property is used as a primary residence rather than the owner’s state of residence, making it more difficult to claim that it discriminates against interstate commerce. Congress has more room to act because it can use its Commerce Clause authority to preempt certain state taxes that burden interstate commerce, as it has done before. But even that path would be difficult. Congress would need to carefully define the taxes being prohibited, establish a sufficient connection to interstate commerce, expressly preempt state law, and likely override the Tax Injunction Act—meaning there may be a federal solution, but not an easy presidential one.Congress, however, is currently focused on other matters, such as the Taxpayer Assistance and Service Act, a bipartisan tax-administration package introduced by Senate Finance Chairman Mike Crapo (R-ID) and Ranking Member Ron Wyden (D-OR). The package, which is supported by the National Taxpayer Advocate (NTA) and many tax practitioners (like me), now contains more than 60 provisions.Among other things, it would codify that an e-filed return or payment transmitted by the deadline would generally be treated as timely, similar to the “mailbox rule” for returns and payments sent through the mail. It would also establish stronger minimum standards and oversight for paid return preparers, one of Wyden's major priorities and a longstanding NTA concern.One thing it won’t do? Offer previously anticipated relief for Americans living abroad. The Senate Finance Committee narrowed those provisions ahead of its markup. Notably, proposed foreign-currency provisions that could have relieved taxpayers from recognizing taxable “phantom” gains from exchange-rate fluctuations were dropped. The remaining package instead calls for studies on simplifying Foreign Bank Account Report (FBAR) filings and tax reporting, the broader tax burdens facing Americans abroad, and additional time to challenge certain math-error assessments.The committee did, however, add the Fairness in Foreign Filing Act, which would make important changes to international information-return penalties. Among other things, it would clarify the IRS’s authority to assess certain penalties—effectively reversing the Tax Court’s Farhy holding—while giving taxpayers new procedural protections, including notice and an opportunity for IRS Appeals review before certain international reporting penalties can be assessed or collected.Also surprising the tax community this week? The Fifth Circuit withdrew its January opinion in Sirius Solutions—now captioned K Alain L.L.L.P. v. Commissioner—and replaced its bright-line test for determining who qualifies as a “limited partner” for the self-employment tax exception. Rather than relying on state-law status and limited liability, the court now says a limited partner under section 1402(a)(13) is one who plays “no significant role in managing or running a business.” The case has been sent back to the Tax Court.The new ruling leaves taxpayers with a much less certain facts-and-circumstances inquiry. That means limited liability alone is not enough, but merely providing services does not necessarily disqualify a partner from the exception either. That distinction can be an expensive one—a tax pro recently noted on social media that the outcome of this case will make a $400,000 difference on her client’s return.The decision is binding in the Fifth Circuit (Louisiana, Mississippi, and Texas) while related cases remain pending in other circuits. That, of course, raises the possibility of conflicting rulings and, I’m guessing, potential Supreme Court review.And that’s the big tax news. On a personal note, this will be my last Forbes tax newsletter. I am truly appreciative of all of the support from the tax community and my readers. You made writing each week so much fun, and your notes and emails were so encouraging. I will miss it all.As my kids would say, this isn’t a complete goodbye: I’m not dying. You can find me around the web—just look for Taxgirl.Thanks for being amazing.Enjoy your weekend,Kelly Phillips Erb (Senior Writer, Tax)This is a published version of the Tax Breaks newsletter, you can sign up to get Tax Breaks in your inbox here.QuestionsCell phones are useful, but not always deductible.gettyThis week, a taxpayer asked:I had to buy a new cell phone. Since I'm remote, I use it mostly for work. Can I deduct the cost?Unfortunately, no.Even if it would otherwise qualify as an unreimbursed employee business expense, employees can no longer deduct it on their federal income tax return under current law. That’s thanks to the Tax Cuts and Jobs Act (TCJA), which suspended these miscellaneous itemized deductions through 2025, and the One Big Beautiful Bill Act (OBBBA), which made that elimination permanent.Your best option for tax-free relief is to ask whether your employer offers a direct reimbursement. Under an employer's accountable plan, a phone reimbursement is tax-free to you and fully deductible for the company.(One additional note: If you reside in a state like California, New York, or Pennsylvania, you may still be able to claim a deduction on your state return, or state labor laws may require your employer to reimburse you.)Statistics, Charts, and GraphsCBPPA new academic study suggests that massive state and local tax incentive packages—so-called “Megadeals” worth at least $100 million—may produce an overlooked benefit: increased innovation among unrelated businesses located near the subsidized company. Researchers found that they were associated with increased patenting by local firms, particularly when the subsidies went to laboratories, corporate headquarters, and high-tech manufacturing facilities, with evidence pointing to knowledge spillovers and employee movement as key drivers.The study adds a new wrinkle to the ongoing debate over whether these increasingly expensive corporate incentives are worth their cost to taxpayers. As the map shows, Megadeals have been awarded across the country, and while prior research has questioned whether they deliver promised employment gains, the new findings suggest their economic effects may extend beyond the company receiving the subsidy. The researchers caution, however, that the study does not answer the ultimate policy question: whether those innovation gains are valuable enough to justify billions of dollars in foregone tax revenue.Tax TriviaSince 1980, what U.S. weather and climate disaster has caused the greatest inflation-adjusted economic loss? (A) Los Angeles Wildfires (2025) (B) Hurricane Sandy (2012) (C) Hurricane Katrina (2005) (D) Drought/Heat Wave (1988)Find the answer at the bottom of this newsletter.Positions And GuidanceThe IRS has proposed rules limiting Trump Account investments during the beneficiary’s growth period to low-cost, unleveraged mutual funds and ETFs that primarily track U.S. equity indexes, and establishing trustee procedures and default investment rules.NoteworthyThe IRS has launched a digitally authenticated Tax Compliance Report that taxpayers can download through their Individual Online Account and securely share with employers, lenders, government agencies, and others that need to verify their tax compliance.Key FiguresKelly Phillips ErbThat’s how much the Budget Lab at Yale estimates that a federal cannabis excise tax based on THC potency could raise over ten years, assuming federal legalization and a tax of $0.00625 per milligram of THC. If every state also legalized cannabis, projected federal revenue would nearly double to $111.3 billion. At the model’s assumed potency levels, the tax would add about $1.31 to the price of a gram of dried cannabis flower (the dried, smokable part of the cannabis plant), roughly a 15% increase, bringing the tax-inclusive average to $8.59 per gram.The $57.9 billion figure comes with significant caveats. Cannabis remains federally illegal, much of the existing market operates outside the legal system, and the model depends on assumptions about how consumers and businesses would respond to legalization and taxation. Perhaps more fundamentally, a potency-based tax would make measured THC content the federal tax base—even though research has found substantial discrepancies between labeled and independently measured THC levels, raising questions about how reliably the government could administer a tax capable of generating that much revenue.Trivia AnswerThe answer is (C) Hurricane Katrina.Canal Street is flooded a day after Hurricane Katrina blew through August 30, 2005 in New Orleans, Louisiana. (Photo by Chris Graythen/Getty Images)Getty ImagesHurricane Katrina remains the most expensive individual U.S. weather or climate disaster in NOAA’s post-1980 record, with an inflation-adjusted $201.3 billion in damages and costs.The Los Angeles fires in 2025 (also called the Palisades and Eaton fires) damaged or destroyed more than 18,000 structures, making them among California’s most destructive wildfires. As a result, Congress recently passed legislation extending the federal tax exclusion for certain wildfire-related recoveries, with President Trump expected to sign it into law. The measure would generally make the date of the federal disaster declaration—not the payment date—controlling in determining eligibility for qualifying wildfire payments. Hurricane Sandy caused catastrophic damage across the Northeast, particularly in New York and New Jersey, making 2012 one of the costliest disaster years on record at the time.The 1988 drought and heat wave affected a large portion of the central and eastern United States, with the most severe economic damage falling on agriculture and related industries. The agricultural effects were extraordinary, and as a result, the federal government spent billions on drought relief and farm-credit programs.Worth A Second LookThe links, clips, and tax takes readers loved (and a few you may have missed):U.S. Businesses No Longer Face Corporate Transparency Act ReportingMoving Your 401(k)? New IRS Forms Could Make Rollovers EasierYou can find the last edition of the newsletter here.Tax Filing Deadlines📅 September 15, 2026. Due date for your 2026 Q3 estimated tax payment.📅 October 15, 2026. Due date for individual taxpayers filing on extension (payment was still due April 15).Tax Conferences And Events📅 August 25-27. International Association of Financial Crimes Investigators (IAFCI) International Training Conference. Nashville, Tennessee.