Not enough SALT in your 2018 tax return?

June 3, 2019

Starting with the 2018 tax year, the maximum State and Local Tax (SALT) deduction changed from unlimited to $10,000. NOTE: deducting your property taxes on commercial properties is protected, as these are essentially “business deductions”, and not related to your itemized personal deductions.

 

Having just filed their 2018 taxes, many investors have faced sticker shock over dramatic changes compared to their previous year’s tax return.

 

Most notably, investors are taking a closer look at changes to the State and Local Tax (SALT) deduction: starting with the 2018 tax year, the maximum SALT deduction changed from unlimited to $10,000.

 

For investors residing in high income tax states such as California, this is a heavy blow. Consider the following:

  • California investors are typically higher earners, with incomes well over $100,000 and correlatively higher expenses, home loan interest deductions, property tax bills, etc.

  • As a result, they elect to itemize their deductions, as this will net a total higher than the current standard deduction ($12,000 for single filers, $24,000 for joint).

  • California investors typically elect to deduct their income tax due to California’s high state income tax rate (as opposed to income tax-free states such as Nevada, where the investor would likely deduct their sales taxes).

  • In 2014 the average size of the SALT deduction is California was $17,148.

 

For the average California taxpayer, they have lost over $7,000 in SALT deductions. For California investors with more valuable homes and resultantly higher property tax bills, this loss can be even more dramatic. 

 

NOTE: deducting your property taxes on commercial properties is protected, as these are essentially “business deductions”, and not related to your itemized personal deductions.

 

Before you start moving to Incline Village—contact your trusted CPA to learn more about how the changes to the SALT deduction may have affected your after-tax bottom line.

 

 

Sources:

  1. https://smartasset.com/taxes/trumps-plan-to-eliminate-the-state-and-local-tax-deduction-explained

  2. https://ttlc.intuit.com/questions/4144891-will-i-still-be-able-to-deduct-property-taxes-on-my-rental-property-under-the-new-law-if-i-already-reach-10-000-salt-cap-deduction-through-personal-home-property-tax

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