Apr 2, 2021

Eliminating the State and Local Tax Limit Deduction

When President Trump implemented his tax cuts, which positively impacted all Americans that pay income taxes, as part of the deal state and local tax deductions were limited to $10,000.  Though you could still deduct home mortgage interest on loans up to $750,000,  state income and property tax deductions were limited to no more than $10,000.  Naturally states like California and New York and others that have very high state income taxes and property taxes screamed because their most wealthy residents were marginally impacted.  

However, since the top federal personal income tax rate went from 39.6% to 36%, it could be argued that giving up this deduction really did not have much impact for high wage earners.  In any case, now that President Biden wants to raise rates again to 39.6% for high wage earners making more than $400,000 a year, blue state members of Congress want to restore the SALT deductions.  Ironically, it really benefits high income earners the most.

The key to all of this is that President Biden is planning the largest tax increase since 1993. Homeowners in particular will need to watch to see how it impacts them.  There will no doubt be winners and losers when the dust settles.  There always is any time they tamper with the tax code.