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Tax Reform and the State and Local Tax (SALT) Deduction

Tax Reform and the State and Local Tax (SALT) Deduction

If your clients live in a state that imposes a sales, income, property or real estate tax, the IRS will allow them to deduct those amounts on their federal income tax return to lower their tax bill. Before the tax laws changed, there was no limit to how much taxpayers could deduct for state and local taxes (SALT). Beginning in tax year 2018, the deduction has been capped at $10,000 for all state and local income, property, and sales taxes combined.

Note: Clients who use their home or part of their home for work can still take a business deduction for their property, even if it means they exceed the $10,000 limit.

Which clients will be most affected?

This tax law change does not directly affect everyone. The new SALT restriction specifically affects your clients who itemize their deductions on their tax return.

The new limit will have the most significant impact on taxpayers living in states with high income and property tax like California, New York, New Jersey, New Hampshire, Connecticut, and Oregon.

The $10,000 cap applies to most filing statuses. Married couples, consequently, will feel the impact more than singles. For instance, your clients who file as single can deduct up to the full $10,000 amount, but for clients who are married filing jointly, the maximum allowed is still $10,000 per return. Even if a client and spouse file separately, they can only deduct up to $5,000 each, for a total of $10,000.

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