November 29th, 2017
Michael D. Kresh CFP® RF™
Dan Kresh FPQP™
Limiting salt in your diet may be good for your body, but losing the ability to deduct SALT from your taxes may be bad for your wallet. State and Local Tax (SALT) deductions enable millions of Americans to itemize their deductions and take home more of their money. The Senate and House want to limit or eliminate the deduction of SALT from your taxes which could result in many middle-class earners pocketing less of their paycheck.
Your federal tax bill is based on your adjusted gross income (AGI). Without the ability to deduct SALT, many people who currently itemize their deductions will just use the standard deduction. Though the standard deduction will be higher, and the tax brackets would be lower, this will mean a higher adjusted gross income for many. If your AGI goes up enough, you will take home less.
The tax reform proposals from both the House and the Senate are currently looking at killing the deduction for state income, property and sales taxes. Hey, wait a minute, will I be punished if I live in a state will high SALT[ii]? In fact, according to the nonpartisan Joint Committee on Taxation “Congressional analysts are estimating that the Republican Senate tax bill would increase taxes in 2019 for some 13.8 million U.S. households earning less than $200,000 a year.”[iii]
According to the Daily News, in New York “A whopping 3.2 million people claim the deduction statewide, with 85% of those residents make less than $200,000 a year...”[iv] The Washington Post reported also reported, “what has been widely overlooked is that residents of well-to-do suburbs in red and blue states across the nation — including here, just north of Atlanta — could find themselves in a similar tax squeeze.”[v] So as we have seen above, nearly 14 million taxpayers nationwide making less than $200,000 could see their taxes increase. So where is the middle-class tax break that we were promised?
Let us look at three hypothetical taxpayers based upon our client mix.[vi]
Income Property tax State income tax AGI 2017 AGI 2018 Projected Federal Tax increase%
$200,000 $30,000 $12,500 $143,400 $176,000 24%
$110,000 $18,500 $7,250 $69,437 $86,000 14%
$75,000 $12500 $5,500 $41,900 $51,000 7%
As you can see from the illustrations above, if you are a homeowner in New York, significant increases in your taxes may be a possible outcome from the Tax bill. Most New Yorkers making $200K or less would probably not consider themselves wealthy, yet here we are with rising taxes. Although we are not sure that this bill will pass, there is still time to talk with your tax advisors to see if you can do anything before Dec,31 to soften next year’s tax blow.
Though this article contains tax information it should not be considered tax advice. We recommend consulting a tax professional and would be happy to facilitate a meeting with you and your tax professional to navigate the changing landscape together.
[i] State and Local Taxes
[ii] Senate Tax Plan Diverges From House Version, Highlighting Political Pressures New York Times NOV. 9, 2017
[iii] CNBC.com 11/13/2017
[iv] GOP tax plan would deal huge blow to millions of New Yorkers by ending state, local property tax deductibility NY dailynews.com
[v] The Washington Post washingtonpost.com 11/09/2017
[vi] The calculations above deal mostly with property and state tax issues and are based upon the Senate’s tax tables. Because of the loss of State and Local Tax deductions homeowners may only be able use standard deduction and therefore loose other itemized deduction. There are many more factors to review.