![]() ![]() For advocates of the deduction, eliminating it would therefore constitute double taxation.Īt the same time, the SALT deduction is one of the largest federal tax expenditures. Defenders of the SALT deduction, such as the National Governors Association, point out that state and local income, real estate and sales taxes are mandatory. The deduction for state and local taxes has been around since 1913, when the U.S. States and cities with high income taxes also tend to be high-opportunity states like California and New York. Filers who deduct their state and local income taxes tend to be high earners in thriving states. Those who stand to gain from deducting their property taxes tend to be those who have expensive homes in prospering communities. According to the Tax Foundation, people with incomes over $100,000 receive more than 88% of SALT deduction benefits. They also tend to have the highest average SALT deductions. (Any deduction the federal government offers is a subsidy.) As you might expect, wealthy residents of wealthy states are most likely to pay state and local taxes. With the deduction for state and local taxes, the federal government is effectively subsidizing high earners in high-productivity states and cities. ![]() The higher your income, the more valuable tax deductions are to you in general because you’re taxed at a higher rate. High-income filers are much more likely to itemize and therefore more likely to take the SALT deduction. ![]() Not every American takes the state and local tax deduction. Financial advisors can provide you with that guidance, and you can pair up with an advisor using SmartAsset’s matching tool. Since these tax matters can get complex, it’s useful to have guidance through tax season from an expert. So you need to have another $2,950 of itemized deductions for tax year 2022 and $3,850 for tax year 2023, beyond the SALT deduction, in order to itemize. The limit is also important to know because the 2022 standard deduction is $12,950 for single filers and $13,850 in 2023. This will leave some high-income filers with a higher tax bill. Starting with the 2018 tax year, the maximum SALT deduction became $10,000. However, property taxes and income taxes - not sales taxes - are the primary drivers of the SALT deduction. Residents of states with high sales taxes (Louisiana, Texas and others) and low or nonexistent income taxes generally opt to deduct their sales taxes if they itemize. Residents of states with high income taxes ( California, New York, New Jersey and Maryland, to name a few) generally opt to deduct their state and local income taxes if they itemize. Most choose to deduct their income taxes because those payments generally exceed sales tax payments. More specifically, anyone who itemizes can deduct property taxes, but must choose between deducting their income taxes and sales taxes. This SALT deduction includes property, income and sales taxes. Taxpayers who itemize their deductions (meaning they don’t take the standard deduction) can deduct what they’ve paid in certain state and local taxes. ![]()
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