That Long List of Deductions Just Shrank
Do you live in a state with high income taxes? If your saving grace has been a long list of deductions, the game may be over thanks to the SALT limitations. Unless you move out of state (which might be a viable option) you might be losing ground instead of saving money this year.
Some IRS tax deductions have gone away forever—they will no longer be available. However, the SALT deduction, which includes property tax deductions, did squeak by. So, yes, property taxes are still deductible.
The SALT limitation is one of the most controversial new tax changes affecting taxpayers this year. It adds insult to injury after a battery of other tax law modifications in recent months.
Currently, itemized deductions are unlimited as long as taxpayers choose to deduct either income taxes or sales taxes. Most people find deducting income taxes most beneficial. (For those living in a no income tax state this is a non-issue.) Property taxes were also completely deductible.
Under the new plan, starting this year (2018) taxpayers who itemize will be able to deduct a total of $10,000 of their state individual income, sales and property taxes.
Is there any hope for you or will you be watching your financial assets dribble away this tax season?
If relocating sounds attractive but picking up and moving to a lower income tax state is out of the question, there are other ways to face off with SALT limitations.
What is most controversial about this change is that while aspects of the plan could help offset the lower threshold, in most cases the benefits won’t be enough to balance the loss of tens of thousands of dollars in SALT deductions some filers will lose.
Who Does SALT Benefit?
Those taxpayers with incomes higher than $100,000 get almost 90% of the SALT Benefit. What’s interesting is less than one third of taxpayers itemize deductions, and of those that do, almost all take the SALT deduction. The main reason for itemizing is the SALT deduction.
According the Georgetown University Law Center the SALT deduction is valuable to taxpayers on one hand, because it pushes them out of standard deductions. On top of that they benefit from additional deductions. But going forward, because the new reform nearly doubles the standard deduction, fewer taxpayers are likely to decline itemizing altogether.
Is Marriage Being Penalized?
Homeowners with multiple property assets have been used to being able to fully deduct their property taxes are sitting on the edges of their seats. Married couples are doing the same.
The new SALT deduction reduces benefits once afforded married couples since the limit is the same, whether the taxpayers are married or single. Two unmarried taxpayers living together paying $10,000 in SALT receive a combined $20,000. If they get married, that is cut in half.
With weeks left until 2018 becomes a memory, taxpayers have many decisions to make and make quickly. Contact us at firstname.lastname@example.org for answers to your questions.
Courtesy of American Institute of Certified Tax Planners