Alright, everybody, I’m Logan Allec, I’m a CPA, and today I’m talking about the state
and local tax deduction because it is in the news again. This video is sponsored by me,
if you owe back taxes of at least ten thousand dollars to the IRS, you can reach out to me,
I tell you how to do that in the description below, I also have other free goodies down
there in the description such as my ebook on 75 ideas to help you pocket an extra hundred
dollars a month. But let’s talk taxes. So what’s the deal with the state and local
tax deduction, referred to as the SALT deduction, salt for state and local tax? So it used to
be, before the Republicans passed the Tax Cuts and Jobs Act in 2017, that if you itemize
your deductions you could deduct all of your state and local income taxes paid -- whether
through withholding or estimated tax payments or payment with your tax return -- you could
deduct for regular income tax purposes all of your property taxes paid, whether on real
estate or personal property taxes like a portion of your DMV fees, you could deduct all of
it, now, there were other limitations on itemized deductions like the Pease Limitation and the
alternative minimum tax, but for regular income tax purposes you could deduct all your state
and local taxes paid if you itemized your deductions. Well, the Republican Tax Cuts
and Jobs Act was passed through reconciliation in December 2017 and that law said that beginning
in tax year 2018 and at least until 2025, you can only deduct up to $10,000 of state
and local taxes on your Schedule A each year, and that number doesn’t change if you’re
single or you’re married. Putting this cap on this deduction puts about an additional
eighty-eight, eighty-nine billion dollars in the federal government’s pocket every
year over if the cap was removed. Now, think about who this cap largely affects. This largely
affects taxpayers in states with high income taxes like California and New York, homeowners
in states with high property tax rates like New Jersey and Illinois, and taxpayers who
live in states that may not have super high property tax rates but who have high property
values, like here in California where the median home price is over seven hundred and
fifty thousand dollars and that’s for the entire state, we’re not even talking about
focusing on just the really expensive areas, and sure, our property tax rates aren’t
super high compared to other states and we have Prop 13 which prevents the assessed value
from going up a lot year over year, so you can kind of estimate the property tax on a
new-home purchase at one point two five percent of purchase price, so a seven hundred and
fifty thousand dollar home, you’re looking at a nine thousand, three hundred and seventy-five
dollar property tax bill a year. That leaves like a little over six hundred dollars of
deductible state income taxes, and California’s state income tax rate is astronomically high
as well. So my point is that, no surprises here, this SALT limitation of $10,000 found
in the Republican Tax Cuts and Jobs largely affected middle-class and above homeowners
in high-tax, generally blue states. So now that Democrats control the White House and
both houses of Congress, you have many Democrats and even some Republicans saying, “Hey,
let’s repeal this $10,000 cap.” Just this morning, Representative Josh Gottheimer, who
is the Democratic co-chair of the Problem Solvers Caucus, he represents New Jersey’s
fifth district, this morning he tweeted, “The SALT cap’s disproportionate impact on New
Jersey home values is absurd -- 16 of 30 counties where homes are expected to take the hardest
hits are in New Jersey. Eliminating the cap would give 30% of New Jersey a tax break and
make it more affordable for families to live here.” And last Wednesday he sent a letter
to Treasury Secretary Janet Yellen essentially urging her to support a repeal of the $10,000
SALT cap. In this letter he says the SALT cap has been a disaster, he says repealing
it would return hard-earned money to the pockets of hardworking families. And he proposes making
up that gap by going after tax cheats, he cites the IRS Commissioner who said that more
than one trillion dollars in federal taxes go unpaid every year. So he’s saying, look,
let’s repeal the SALT cap and to make up the lost revenues from people having more
deductions, let’s beef up enforcement and collection actions at the IRS, so now might
be a good time to look into tax relief, offers in compromise, all that stuff, link in the
description below if you’re interesting in reaching out to me and my team about tax
relief. Twenty-one Democratic and nine Republican members of the House have also formed this
new Bipartisan SALT caucus with the goal of repealing the SALT cap, and they’re basically
saying that they’re not going to vote for any tax bill unless it repeals the $10,000
SALT cap. Now, you need a simple majority to pass legislation in the House. But assuming
no Republicans go for a piece of legislation, twenty-one Democrats is more than enough to
keep a bill from passing in the House with the current House makeup. So this could be
a real showdown here over this SALT cap issue. Now, I will point out that it’s typically
the more moderate Democrats who are behind repealing the SALT cap because progressives
point out that repealing the SALT cap would largely benefit wealthier Americans. Alexandria
Ocasio-Cortez last week said, “I don’t think we should be holding the infrastructure
package hostage of a 100% full repeal on SALT, especially in the case of a full repeal. Personally,
I can’t stress how much that is a giveaway to the rich.” And she does have a point,
I think something like the top one percent of earners would get the majority of the benefit
here and the top twenty percent of earners would get more than 90% of the benefit here,
but you also have to put this in perspective, that’s the top 1% nationally and the top
20% nationally. Well being in the top 20% income-wise nationally, that’s an income
of about one hundred and fifty thousand dollars a year or more, maybe a great income in flyover
country but that’s barely scraping by in places like San Francisco for instance, and
we can rabbit trail this ad nauseum, but here is yet another issue that can divide the Democratic
party as Congress moves away from stimulus and toward infrastructure and taxes. Of course
we don’t know if Biden is going to push for this, hopefully we will have a better
idea tomorrow evening when the president presents his tax plan to Congress. I will of course
continue to monitor this issue, if you want to see my overview of the 2021 Child Tax Credit,
you can check that out right over here and if you want to see me review various tax softwares
because that tax deadline is coming up, May 17, you can check out that playlist right
down here, and I will see you over in those video.