The IRS continues to allow qualified taxpayers to deduct up to $10,000 in property taxes under the State and Local Tax (SALT) deduction, which is good news for homeowners who wish to ease their financial burden this tax year.
You might be able to use the SALT deduction to cut your tax payment if you itemize your taxes and lessen the amount of your income that is subject to taxes.
Your property taxes must be shown as itemized deductions on Schedule A of your return in order to qualify for the SALT deduction.
In the case of married couples filing separately, they include state and local property taxes up to a limit of $10,000 to $5,000. Only eligible property taxes paid during the tax year are eligible for the deduction.
A significant tax benefit is the SALT deduction, especially for residents of jurisdictions with high property taxes like California, New Jersey, and New York.
What is the deductible for SALT?
A federal tax benefit known as the SALT deduction lowers a taxpayer’s taxable income by allowing them to deduct the amount they pay in state and local taxes, such as sales and property taxes.
The Tax Cuts and Jobs Act (TCJA), which was introduced by Donald Trump during his first term as president in 2017, set a $10,000 deduction ceiling. However, the cap is scheduled to expire at the end of 2025.
Prior to 2018, most taxpayers were able to deduct 100% of their state and local taxes since the SALT deduction amount was limitless.
Legislators set a $10,000 cap for married and single couples filing jointly and a $5,000 cap for married couples filing separately in the 2017 TCJA.
High-tax states like California, New York, and New Jersey, who contend the deduction disproportionately impacts them, were significantly impacted by this new cap, which also served to partially offset the lost revenue from the TCJA tax cuts.
How the SALT deduction is claimed
You must itemize in order to benefit from the SALT deduction, which can lower your tax burden, and itemizing only makes sense if your deductible expenses are greater than the standard deduction.
The SALT deduction applies to several types of taxes:
- State and local income taxes
- Tax on sales
- Tax on real estate
Taxpayers are forced to choose between deducting both local and state sales taxes and local and state income taxes; they cannot do both in the same year.
For instance, residents of income-tax-free states are more likely to opt to deduct sales taxes than state income taxes, while residents of states with high income taxes would probably profit by claiming the SALT deduction for state income taxes.
Gasoline, auto inspection costs, and license fees are among the state and local taxes that are not deductible.
What is the current status of the SALT cap?
Unless Congress enacts legislation before then, the SALT deduction will return to its unrestricted amount when the tax provisions in the TCJA expire at the end of 2025.
Since Republicans hold the White House, lawmakers in the United States are preparing a significant tax overhaul. According to reports, President Trump and both chambers of Congress would like to see changes made to the SALT $10,000 cap in 2025.
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While some Republicans are discussing a SALT adjustment of up to $30,000, others have stated that they will not support a 2025 tax overhaul that does not remove or lift the cap.
During his 2024 presidential campaign, Trump demanded that the SALT ceiling be lifted, evoking conflicting responses. While some criticized him for having previously backed the law that imposed the cap, others saw it as a necessary adjustment for taxpayers in high-tax states.
The Committee for Responsible Budget estimates that removing the SALT cap might cost $1.2 trillion over a ten-year period. Concerns regarding federal revenue and deficit reduction have been highlighted by these figures.
