Categories: Taxes and Retirement

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

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.

View Comments (5)

  • 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.

  • 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.

  • 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!

  • The SALT deduction will now be limited to $10,000. That would include State INCOME tax (or State sales tax), Real Estate Taxes, and Personal Property taxes. State income taxes are not deductible on my State tax return, so they need to be added back on a State tax return. Many States don't allow you to deduct State INCOME tax, so many others will be in the same situation as I will be.

    Which of the SALT deductions (income, real estate or personal property tax) gets limited and how much State INCOME tax gets limited? It makes a difference when you go have to back to add back in State INCOME taxes on the State return. Can I pick which of the three gets limited?

    For example, let's say my State income tax deduction for 2018 is $8,000, my real estate deduction is $4,000 and my personal property tax deduction is $2,000. That totals $14,000 for my SALT deductions for 2018. However, for 2018, I am limited to $10,000 in SALT deductions (I would "lose" $4,000). Which of the three SALT components gets limited and by how much (to make up for the lost $4,000)?

    Prior to 2018, I would be able to deduct the full $14,000 SALT deduction on my FEDERAL income tax return ($8,000 in State income taxes, $4,000 for R/E tax, and $2,000 for personal property taxes). But, for my STATE tax return, I would need to add back the full $8,000 deduction for State INCOME taxes (thus increasing my State taxable income) because I am not allowed to deduct State INCOME taxes on my State tax return. The real estate taxes and personal property tax deductions remain the same on the State return because they are still deductible on the State tax return.

    Beginning in 2018, the SALT deduction would be limited to $10,000, so how much do I add back on my State income tax return for the State INCOME tax deducted? Obviously, I would like to limit the State INCOME taxes entirely (in this case limit the State income taxes to $4,000) by assuming the entire $4,000 lost from the SALT deduction was entirely State INCOME taxes. That way, I would add back only $4,000 on the State tax return (increasing my State taxable income) vs. assuming the "lost" SALT deductions were entirely real estate and/or personal property taxes and need to add back $8,000 in State INCOME taxes on the State income tax return. Can I assume? Can I pick and choose? Do I need to prorate them each and limit each SALT component? Is confusion on the horizon?

  • No one has answered my question, yet. So, there is a limit of $10,000 for SALT. That is phrased in some places as an individual deduction. What about a couple? Can they deduct a combined total of $20,000? If not, isn't this a marriage penalty tax??