The SALT deduction: Bad news for high-tax states
The biggest tax deduction by dollar amount that Americans have taken advantage of in recent years is the deduction for state and local taxes -- also known as the SALT (State and Local Taxes) deduction. Specifically, Americans have been able to deduct the following:
State and/or local property taxes, such as those paid on a personal residence, automobile, or other personal property.
State and local income taxes or state sales taxes, whichever results in the larger deduction. Generally speaking, income taxes are the better deduction, but the option to deduct sales tax allows residents of states without an income tax to benefit, as well. If you choose the sales tax option, you don't need receipts -- the IRS provides a calculator to determine this deduction.
Starting with the 2018 tax year, however, the SALT deduction is limited to a total of $10,000. This may sound like a lot, but many Americans -- especially those in high tax states like New York, New Jersey, and California -- have been deducting several times this amount. For example, the property tax on my parents' modest home in New Jersey almost reaches the $10,000 cap all by itself.
Now, millions of Americans cannot deduct their state and local taxes, and on top of that, the higher standard deduction means that many families who pay high amounts of state and local taxes may not be able to take advantage of the SALT deduction at all.