Future of the SALT Limitation in Limbo
This is the third in a series of articles for clients to keep them updated on the thinking on Capitol Hill on proposed changes so you can plan appropriately. The future of the SALT deduction limitation is uncertain and heavily dependent on the political landscape. Please contact this office with questions.
The state and local tax (SALT) deduction has been a significant aspect of the U.S. tax code, allowing 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) introduced a limitation on this deduction, which has been a topic of considerable debate and discussion.
The SALT deduction has historically allowed taxpayers to deduct property taxes and either income or sales taxes paid to state and local governments, with no limitation on the amount of the deduction prior to 2018. This deduction was particularly beneficial for taxpayers in states with high tax rates. However, with the passage of the TCJA in late 2017, a cap of $10,000 was placed on the SALT deduction for individuals and married couples filing jointly.
The SALT deduction limitation, like many other provisions of the TCJA, is set to expire after 2025. This expiration means that unless Congress acts, the SALT deduction will revert to its pre-TCJA status, allowing taxpayers to deduct the full amount of the state and local taxes they paid each tax year when they itemize their deductions (Schedule A of Form 1040).
The future of the SALT deduction limitation is uncertain and heavily dependent on the political landscape. The debate around the SALT cap is highly polarized, with some advocating for its removal to alleviate the tax burden on residents of high-tax states, while others argue that the cap should remain to prevent subsidizing high state taxes through federal tax deductions. Here are several bills that are currently pending in Congress with a wide range of options.
The Securing Access to Lower Taxes by ensuring Deductibility Act (the SALT Deductibility Act) – This is a bipartisan bill which would return the SALT deduction to its pre-TCJA status, effective for 2025, allowing an unlimited deduction for itemizers.
The SALT Fairness and Marriage Penalty Elimination Act (H.R. 232) which would increase the SALT deduction cap to $100,000 for single filers and $200,000 for married couples filing jointly.
The SALT Fairness for Working Families Act (H.R. 246) which would increase the cap to $15,000 for single filers and $30,000 for married couples filing jointly.
President Trump promised to repeal the limit on state and local tax deductions during his 2024 campaign. His administration originally created the cap as part of the TCJA in order to help pay for some of the taxpayer-friendly changes in that law.
The outcome will significantly impact tax planning and the financial landscape for many Americans, particularly those in states with high state and local taxes. Whether the cap will be extended, modified, or allowed to expire will depend on the political negotiations and priorities of the 119th Congress.
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