Article Highlights:
- State and Local Tax (SALT) Deduction
- Tax Cuts and Jobs Act of 2017 (TCJA)
- SALT Limitation Heavily Dependent on the Political Landscape
- Pending Legislation in Congress
- Securing Access to Lower Taxes by ensuring Deductibility Act
- SALT Fairness and Marriage Penalty Elimination Act (H.R. 232)
- SALT Fairness for Working Families Act (H.R. 246)
This is the third in a series of articles for customers to keep them informed of Capitol Hill's thoughts on possible changes so that you may prepare accordingly. The future of the SALT deduction restriction is unclear and highly influenced by the political environment. Please contact this office if you have any queries.
The state and local tax (SALT) deduction is an important part of the US tax system, enabling taxpayers to deduct certain taxes paid to state and local governments from their federal taxable income. However, the Tax Cuts and Jobs Act of 2017 (TCJA) limited this deduction, which has sparked much controversy and discussion.
Prior to 2018, the SALT deduction permitted taxpayers to deduct property taxes as well as income or sales taxes paid to state and local governments, with no limit on the amount deducted. This deduction was especially useful to taxpayers in states with high tax rates. However, with the passing of the Tax Cuts and Jobs Act in late 2017, the SALT deduction was limited to $10,000 for individuals and married couples filing jointly.
The SALT deduction restriction, like many other parts of the TCJA, will expire after 2025. This expiry implies that, unless Congress acts, the SALT deduction will return to its pre-TCJA position, enabling taxpayers to deduct the entire amount of state and local taxes paid each tax year when itemizing their deductions (see Schedule A of Form 1040).
The future of the SALT deduction restriction is unclear and highly influenced by the political environment. The SALT limit topic is extremely divisive, with some arguing for its elimination to reduce the tax burden on residents of high-tax states, while others say that the cap should stay in place to avoid high state taxes from being subsidized via federal tax deductions. Here are a few measures now pending in Congress that provide a variety of alternatives.
The SALT Deductibility Act aims to ensure lower taxes. This is a bipartisan plan that would reinstate the SALT deduction to its pre-TCJA levels, commencing in 2025, enabling itemizers to deduct an unlimited amount.
The SALT Fairness and Marriage Penalty Elimination Act (H.R. 232) proposes increasing the SALT deduction maximum to $100,000 for single taxpayers and $200,000 for married couples filing jointly.
The SALT Fairness for Working Families Act (H.R. 246) proposes increasing the maximum to $15,000 for solo taxpayers and $30,000 for married couples filing jointly.
During his 2024 campaign, President Trump vowed to remove the state and local tax deduction cap. His administration initially included the limit in the TCJA to help pay for some of the law's more tax-friendly provisions.
The conclusion will have a huge influence on many Americans' tax planning and financial landscapes, especially in places with high state and local taxes. The 119th Congress' political discussions and goals will determine whether the limit is extended, amended, or allowed to expire.
