By Kevin M. Flynn
The CPA Journal
September 2019 Edition
The itemized deduction for state and local taxes (SALT) under Internal Revenue Code (IRC) section 164 had long provided relief to taxpayers residing in high income and property tax states such as New York, New Jersey, and Connecticut. It assured these taxpayers that their federal tax obligation would only be computed after a reduction for the state and local taxes that they paid, subject to the application of the alternative minimum tax and the itemized deduction limitation. The SALT deduction meant that the IRS could not impose a double tax on that portion of a taxpayer’s income that had been paid in taxes to state and local taxing authorities.
On December 22, 2017, President Donald J. Trump signed the Tax Cuts and Jobs Act (TCJA), which represents the most significant overhaul of the country’s tax laws since the Tax Reform Act of 1986. A major component of the TCJA was a $10,000 per calendar year cap on an individual’s aggregate deduction for state and local income, property, and sales taxes [IRC section 164(b)(6)]. This limitation applies to tax years beginning after December 31, 2017, and ending before January 1, 2026.