State and Local Taxes May Soon Be Deductible Again
HR613 and S.85 are Bills in the United States House of Representatives, known as the Securing Access to Lower Taxes by ensuring Deductibility Act (SALT Deductibility Act) . The bills, if passed, would repeal the limitation on federal tax deduction for payment of State and Local taxes. Specifically IRC 164(b) would be amended by striking paragraph (6).
The federal tax reform law known as the Tax Cuts and Jobs Act passed on Dec. 22, 2017 established a limit on the amount of state and local taxes (SALT) that can be deducted on a federal income tax return. Beginning in 2018, the itemized deduction for state and local taxes paid was capped at $10,000 per return for single filers, head of household filers, and married taxpayers filing jointly. The cap is $5,000 for married taxpayers filing separately. In prior years, taxpayers who itemized on their federal income tax return could deduct amounts paid for state and local income (or sales) and property taxes in full. Thus taxpayers were incentivized to prepay state and local taxes by December 31st to get a deduction, rather than waiting until April 15th, which is also helpful to the state and local governments.
The National Governors Association is a bipartisan organization of the nation’s governors, whose consensus-based process drives gubernatorial development of the association’s policy guidelines, has held a longstanding positions favoring preservation of state and local tax deductibility (SALT). Advocates of the deduction asserted in 2017 that eliminating it would constitute double taxation.
The House bill was introduced by Queens New York Congressman Thomas Suozzi and the Senate bill by New York Senator and Senate Majority Leader Charles Schumer (D-New York), along with Senators Ron Wyden (D-Oregon), Menendez (D-New Jersey), Gillibrand (D-New York), Booker (D-New Jersey) , Durbin (D-Illinois) and Duckworth (D-Illinois).
Be mindful that there are likely to be higher taxes in the future and for those that itemize, a deduction for State and Local taxes will take away some of the sting.
