We’ve just had a BIG change to tax law and, for once, it’s good news. If you live in a high tax state and/or pay a lot in property tax, you won’t want to miss this.
If you know someone who does, forward this blog to them.
First, a little background.
SALT Limitation Started 1-1-2018
One of the changes that Congress gave us for deductions as part of the Trump Tax Plan was the SALT limitation.
SALT stands for State and Local Tax. As part of the limitation, you could no longer take a deduction for more than $10,000 in a year for these taxes. That is only applicable if you itemize. However, with this limitation, some people moved to standard deductions which were increased.
State and local taxes would include real estate taxes and state income taxes. If you were in a high tax and high property tax state, you have undoubtedly felt the pain of these changes. You just lost a lot of deductions.
A few states came up with a new scheme to try to get the deduction back for their residents. They allowed pass-through entities such as S Corps and Partnerships to pay state income tax on behalf of the partners. It became a deduction that worked.
The IRS hinted last week that they were considering allowing the scheme. And then this week, they affirmed they would.
States Where This Works
This work around immediately came into effect in CT, LA, MD, NJ, OK, RI and WI. Four more states have legislation already proposed: AL, AR, MI and MN. Not surprisingly, NY and CA are expected to act quickly.
The rumor is that this could be made retroactive to 1/1/2018. We still need to get the final regulations from the IRS. They have promised we’d have them soon.
This could be important for your 2020 tax planning. Stay tuned to the blogs at USTaxAid.com and these emails.
More info on year end tax planning:
Charity Tax Deduction That Doesn’t Work