How Have SALT Deductions Changed Under the Tax Cuts and Jobs Act?

 Posted on June 27, 2019 in Taxation Law

The Tax Cuts and Jobs Act of 2017 (TCJA) implemented many changes that have affected taxpayers, including the deductions that are allowed on federal tax returns. Tax deductions can be used to lower the amount of a person’s income that is subject to taxes, and when used correctly, they can help minimize one’s tax obligations. One area that was affected by the TCJA is the deduction for state and local taxes, which is commonly known as the SALT deduction.

New Limits on SALT Deductions

The TCJA has put a new limit in place for the SALT deduction, and it applies to all homeowners. Previously, SALT deduction limits only applied to those filing as single with a gross income of more than $150,000 or $300,000 to those filing as married filing jointly. Now, the itemized deduction is limited to $10,000 for all taxpayers. According to the White House Office of Management and Budget, this new tax deduction limit will result in $57 billion more in taxes received by the federal government.

Who Do These Changes Affect Most?

This new deduction limit will primarily affect those with higher household incomes. Data has shown that 80% of SALT deduction filers in 2016 had incomes over $100,000. Because high earners typically have high property taxes and/or pay greater amounts of state and local income taxes, they will be likely to pay more in federal taxes without the ability to utilize these deductions.

Other homeowners may also take a hit with the new SALT deductions. Home equity lines of credit allow homeowners to access affordable credit. These loans can be used for a variety of purposes, such as college tuition costs, medical expenses, or reducing interest rates on other loans. Previously, homeowners could deduct the amount of interest paid on home equity loans of up to $100,000. However, these deductions are now limited to loans used for home improvements.

 Contact a San Jose Taxation Attorney for Help

Filing taxes has become a more complex process for many taxpayers following the recent changes to the tax laws. The process can be confusing for those without a background in tax law, and any mistakes made can result in significant penalties. If you are unsure about your eligibility for tax deductions, or if you are facing investigation by the IRS, John D. Teter Law Offices can provide the legal help you need. We have over 30 years of experience helping individuals with tax problems. To learn more about how we can help, contact our experienced San Jose, CA tax deduction lawyer at 408-866-1810.

 Sources: 

https://www.irs.gov/newsroom/with-new-salt-limit-irs-explains-tax-treatment-of-state-and-local-tax-refunds

https://www.bankrate.com/taxes/salt-tax-deduction-cap-hitting-taxpayers-hard/