2018 State and Local Property Taxes (SALT) $10,000 Deduction Cap and Prepaying in 2017

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Under the new Trump/GOP tax reform bill for 2018 the deduction for Sate and Local taxes (SALT) related to property and sales taxes, on federal IRS tax returns is being limited to $10,000. Tax payers will still need to itemize for this deduction, but will have a cap of $10,000 versus today where there is no limit.


The original plan was to eliminate this tax deduction entirely but faced with stiff resistance from GOP members in high tax states like California and New York, the $10,000 deduction allowance limit was instead put in place. Various calculations have shown that high income earners who live in high tax areas like Manhattan, San Francisco, and Seattle will likely take a hit on their tax bill for this area if their state and local taxes exceed $35,000.

IRS update on 2018 property taxes. The IRS formally responded to a common question for many tax payers looking to pre-pay their 2018 property taxes in 2017, so that they can claim the full deduction before the new GOP tax laws that limit this deduction come into effect. The IRS announced that the deduction for their 2018 property taxes may only be deductible only if assessed and paid in 2017.  Only the amount assessed by local governments can be claimed and  and any pre-payments of potential or anticipated property taxes will not be deductible.

Most tax payers who current claim the SALT deduction may instead choose not to take this itemized deduction at all and instead take the much higher (nearly doubled from current levels) standard deductions in place with the new tax reforms.

{ 3 comments… read them below or add one }

Krystal December 31

Please explain this to us. How does this property cap of $10,000 on property taxes (residential and business properties, both?) works for us eking for a decent living with only one average earner now due to a physical limitation of the other. Being in CA even with 2 houses, ones property taxes could be above the cap bracket easy then taking away mortgage interests at a certain level! Have they not considered that business could be losing with a nonpaying defiant renter for about a year and causes more legal expenses with laws concern more of their rights than our rights who are victimized by these undesirable creatures! No gain, only unabated property taxes with no break in expenses? We are towards our retiring years, but not totally, with one earner, a failing business and a child who had turned 17 yrs old. It looks like we are being pushed to the edge!

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Suzanne Boughton December 28

I understand the property tax deduction for personal property but I still have a question. We also own 2 rental properties – a small office building and a 3 family residence – that we rent out for income. Our accountant deducts all legal deductions on this income and it always included property tax. Is this $10,000 cap on property tax also for investment or income property? Even though we don’t live on these properties? We also pay property tax on the home we live in and understand that is affected by the new law. I am only trying to find out if the taxes for the income property will also be affected.

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Brian December 18

Was reading yesterday that “about 70% of taxpayers currently claim the standard deduction when filing their taxes,” It would seem that this near-doubling of the standard deduction will be of benefit to many others.
On the other hand, the expansion of the child tax credit to cover couples with children & incomes up to $400K (from the current $110K), and the lowering of the maximum tax bracket from 39.6% to 37% for incomes over $600K, will help mitigate that change in SALT deduction.

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