Do The New Changes To SALT Affect Your Taxes?
How may the changes related to SALT impact you? Let’s take it from the top.
What is a deduction?
If applicable, a deduction lowers your taxable income, which in turn lowers your tax bill.
Most people may take several deductions, which can range from their home’s mortgage interest to their charitable contributions.
When you file your taxes, you can either itemize your deductions, which means you list them all and deduct the total, or you take a standard deduction, which is a set amount specified by the tax code.
As part of the TCJA and beginning with tax year 2018, everyone now gets a higher standard deduction. And most can benefit from this change. The new tax bill nearly doubles the standard deduction, from $6,350 to $12,000 for individuals, and from $12,700 to $24,000 for married people filing jointly. Just like in the past, you may choose between taking your itemized deductions or the standard deduction. Click here, for more information on another change to itemized deductions.
What sorts of SALT were impacted by the change?
- Sales tax paid on everyday purchases
- Sales tax paid on large purchases, such as a car
- Real property taxes
- State and local income taxes
What changed?
If you add up all of your SALT paid and they total more than $10,000 (or $5,000 if you are Married Filing Separately), then you are limited to taking only $10,000 (or $5,000 if you are Married Filing Separately) as your SALT contribution toward your itemized deductions.
So, for federal income tax purposes, if you will have more than $10,000 in SALT, then this will likely impact your ability to deduct all of the SALT you have paid over the course of the year.
What do I need to do differently when I file my taxes?
Residents of certain states and/or people at a certain income level will be more impacted by this change than others. Here are a few things to keep in mind:
- If you prepaid your 2018 real property taxes to take advantage of the deductions before the 2018 taxable year, consider working with a qualified tax professional to make sure that you can take that deduction the way you intended.
- When making big purchases like a new home, work through the numbers so you’ll have realistic expectations for your tax deductions.
- Several states like California, New Jersey and New York are looking at changes they can make at the state level to lighten the load for someone who might be impacted by a $10,000 limit on the SALT deduction. Stay abreast of your state’s response to the SALT deduction, and make sure you take steps in a timely manner.
If you’re looking for a general review of the new tax bill and how it may impact other aspects of your finances, check out our tax bill overview article.
Visit USAA’s Tax Center for information and resources.
The contents of this document are not intended to be, and are not, legal or tax advice. The applicable tax law is complex, the penalties for non-compliance are severe, and the applicable tax law of your state may differ from federal tax law. Therefore, you should consult your tax and legal advisors regarding your specific situation.
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