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Although the original bill was once referred to as the “Cut, Cut, Cut” bill, the Tax Cuts and Jobs Act of 2017 (“TCJA”) does not provide a tax reduction for all taxpayers. Rather, for residents of high-tax states like New York and New Jersey, the TCJA may result in taxpayers seeing their tax bills increase.
This blog will discuss the changes to the state and local income, sales and property tax deduction (commonly referred to as the “SALT deductions”) under the TCJA and how these changes may impact you.
New Rule. Under the TCJA, SALT deductions, including state income tax and property tax deductions, will be limited to a combined $10,000 per year. This limitation is the same for single filers as it is for married couples filing jointly. Married couples filing separately, however, are subjected to a $5,000 limit each.
Effective date. The limitation on the SALT deductions is effective for tax years beginning after December 31, 2017 and before January 1, 2026.
Impact. Historically, state income taxes (i.e., state tax paid on wages) and property taxes (i.e. state and local tax paid with respect to a residence) were deductible for taxpayers who chose to itemize their deductions on their federal tax return. These deductions were especially large and therefore important for New York and New Jersey residents. This change may be especially costly for the vast majority of New York and New Jersey residents who will not benefit from counterbalancing portions of the TCJA (i.e., residents who do not have estates large enough to benefit from the increased estate tax exemption; residents will continue to itemize their deductions even after the doubling of the standard deduction).
What to look out for. Keep an eye out for changes made by state and local governments that impact the deductibility of your state and local taxes. A restructuring or re-shifting of state and local taxes under new state legislation may result in the undermining of the limitation on SALT deductions.
Going Forward. Due to this change and many other changes made under the TCJA, residents of New York and New Jersey should consider, in the short term and the long term, how the loss of this deduction will impact their ability to pay/save for their current/future health care needs.
We recommend that you consult with a tax attorney to help you decide what choices are right for your specific situation.
Further discussion of the impact of the TCJA on individuals, businesses and estates will be covered in future blog posts
Russo Law Group, P.C.
100 Quentin Roosevelt Blvd., Suite 102
Garden City, NY 11530