State and Local Taxes SALT Limited
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A taxpayer can ask for an itemized deduction for State and local government income and property taxes paid (§164). Instead of taking the way of the itemized deduction for State and local income taxes, taxpayers can ask for an itemized deduction for State and local government sales taxes.
Property taxes can be permitted for deduction in computing adjusted gross income when incurred with property used in commerce or other business; otherwise, they are an itemized deduction. With the State and local income taxes, the inference is an itemized deduction in spite that the tax may be on profits from commerce or business. In determining a taxpayer’s discretionary minimum taxable income, no itemized deduction for property, rent, or sales tax is allowed.
From 2018 to 2025, unless paid or accrued in carrying on a trade or business, or an activity described in §212 (relating to expenses for the production of income), individuals are not permitted an itemized deduction for State and local:
(2) sales taxes, or
(3) property taxes.
Note: As a result, §164 now allows only those deductions for State, local, and foreign property taxes, and sales taxes, that are now deductible in calculating income on an individual’s Schedule C, Schedule E, or Schedule F on such person’s tax return. Thus, for the case of property taxes, a taxpayer can deduct this item only if these taxes were imposed on assets (such as residential rental property).
Are My Property Taxes Still Deductible in 2018?
of business $10,000 Exception
A taxpayer can claim an itemized deduction of up to a total of $10,000 ($5,000 for a married person filing a separate tax return) for the aggregation of
(i) The state and local property taxes not being paid or accrued in carrying on commerce or business, or an activity described in §212, and
(ii) State and local income, war profits, and excess profits taxes (or sales taxes instead of gained money, etc. taxes) paid or accrued in the taxable year.
However, foreign real property taxes may not can not under this exception.
Note: An individual may not claim an itemized deduction in 2017 on prepayment of income tax for coming taxable year to avoid the dollar limitation applicable for taxable years beginning after 2017.
Charitable Contributions Modified
A taxpayer may go for an itemized deduction for charitable contributions (§170).
To be accepted, a contribution must be made by the final of the tax year for which a return is filed. A charitable money deduction is limited to a defined percentage of the tax payer’s (AGI). The AGI limitation is changed according to the kind of property tax contributed and the kind of exempt organization receiving the property.
In general, cash donated to public charities, private operating foundations other than nonoperating private foundations, and certain governmental units and other organizations (“50 percent organizations”) have been deductible up to 50% of the donor’s AGI.
Contributions that did not qualify for the 50% limitation ( e.g ., contributions to private foundations) could be deducted up to the lesser of:
(1) 30% of AGI, or
(2) The excess of the 50%-of-AGI limitation for the tax year over the number of charitable contributions subject to the 30% limitation. Contributions that exceeded the deductible limit could generally be carried four for five years.
From 2018 through 2025, the 50% limitation for cash contributions to public charities and certain private foundations is increased to 60%. The 5-year carryover period is retained to the extent that the contribution amount exceeds 60% of the donor’s AGI.
Six tax deductions you’ll lose on your 2018 return
College Athletic Event Seating Rights Repealed
In general, a charitable deduction is disallowed to the extent a taxpayer receives a benefit in return. A special rule, however, permitted taxpayers to deduct as a charitable contribution 80% of the value of a donation made to an educational institution to secure the right to purchase entries for seating at an athletic competition in a stadium at that institution. Effective 2018 and later, this special rule that provides a charitable deduction of 80% of the amount paid for the right to buy entries for athletic events is repealed.
Substantiation Exception for Donee Reported Contributions Repealed No deduction is permitted for a charitable (cash or noncash) contribution more than $250 unless the donation is substantiated with a contemporaneous written acknowledgment from the charity (§170(f)(8)(A)). However, a taxpayer is not required to obtain a response if the charity files a return reporting the information required.
Effective 2017 and later, this exception that relieves a taxpayer from providing a contemporaneous written acknowledgment from the charity for contributions of $250 or more when the charity files a return with the required information is repealed.
States’ workarounds to the state and local tax deduction limitation
Mortgage Interest Deduction Limited
A person may claim an itemized deduction for mortgage interest paid concerning a primary residence and one more residence of the taxpayer. Itemizers could have deducted interest payments on up to $1 million in acquisition debt (for purchasing, constructing, or substantially improving a residence), and up to $100,000 in home equity indebtedness (§163(h)). Under the alternative minimum tax (AMT), the deduction for residence equity indebtedness is disallowed.
For 2018 through 2025, a taxpayer may treat no more than $750,000 as acquisition indebtedness ($375,000 in the case of married taxpayers filing separately).
In the case of a mortgage incurred before December 15, 2017, this limitation is still $1,000,000 ($500,000 in the case of married taxpayers filing separately).
Note: For taxable years beginning after 2026, a taxpayer may again treat up to $1,000,000 ($500,000 in the case of married taxpayers filing separately) of indebtedness as acquisition indebtedness, regardless of when the indebtedness was incurred.
Also, the deduction for interest on home equity indebtedness is suspended. Thus, for taxable years beginning after 2017, a taxpayer can not claim a deduction for interest on home equity indebtedness. The suspension ends for taxable years beginning after 2025.
Four Workarounds To SALT Deduction Limits In Light Of IRS Proposed Regulations
Securities Rollover Into SSBICs Repealed
Gain or loss generally is recognized on any sale, exchange, or other disposition of property. A special rule permitted an individual or corporation to roll over without recognition of income any capital gain realized on the sale of publicly traded securities when the proceeds were used to purchase common shares or a partnership interest in a specialized small business investment corporation (SSBIC) within 60 days of the sale of the securities (§1044). SSBICs are a special type of investment fund licensed by the U.S. Small Business Administration until 1996
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