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When Itemizing Tax Deductions, Hold the SALT

March 27, 2018

Spilled Salt

The new SALT itemization cap is meant to encourage taxpayers to take the standardized deduction starting 2019.

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No matter where you live in the U.S., you have to pay taxes (sorry). But the type and amount you pay do depend on where you live. Now, taxpayers in high-cost areas who’ve enjoyed cushy itemized deductions for state and local taxes (SALT) may not catch a break anymore.

To itemize or not to itemize? It depends.

Taxpayers have two options for tax deductions: itemize or take the standard set by the IRS. This year’s tax season has no restriction on the total amount of SALT deductions you can have, but that will all change starting next year. The Tax Cuts and Jobs Act (TCJA) will cap taxpayer’s combined state property, income, and sales tax to the following deduction limits:

  • Single filers: $10,000
  • Married filing jointly: $10,000
  • Married filing separately: $5,000

The high-income household shift to standardized deductions

A third of filers pick itemizing over standard deductions, according to the IRS. And of those itemizers, 95 percent choose to deduct their SALT. Most of the SALT-deducting taxpayers live in high-cost states such as New York, California, Oregon, and New Jersey, where property taxes alone can easily exceed the $10,000 threshold. So why the cap?

The SALT itemization cap is meant to encourage taxpayers to use the standard deduction, which sits at:

  • Single filers: $12,000
  • Head of household: $18,000
  • Married filing jointly: $24,000


SALT deduction comparison chart

This is meant to simplify tax preparation as people opt to take the standard. But residents of costly states knew this would be bad for their wallets, and some tried to pre-pay 2018 property taxes before 2017 came to a close. Unfortunately, it doesn’t work that way, and the IRS already added a rule against prepayment.

When it comes down to it, it won’t be worth itemizing your SALT deductions next year unless you’re able to diversify them. Ask your tax preparer if taking the standard is in your best interest and how you can prepare to handle additional tax reform changes.

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