It’s that time again…
And, you may have noticed that the once coveted property tax deduction has changed. The Tax Cuts and Jobs Act of 2018 lowered tax rates and increased the standard deductions across the board, but it also placed a $10,000 limit on deductions for State And Local Taxes (otherwise known as SALT taxes). The SALT deduction has been a part of our tax code since 1913 and has cost the federal government trillions of dollars in lost revenue opportunities. As these deductions were most favorable to those with incomes above $100,000, the federal government decided to make some changes.
The standard deduction for singles has been raised to $12,000 and for married filing jointly to $24,000. In order to claim a SALT deduction, you must itemize your deductions.
Consequently, only about five percent of taxpayers are expected to itemize their deductions as opposed to 30 percent in past years. The new regulations are particularly challenging for those who will itemize their deduction and have high income taxes, high property taxes, or both. And, if you itemize, you can deduct property taxes AND state and local income taxes OR you can deduct property taxes AND sales taxes. But, you cannot deduct state and local income taxes in addition to sales tax.
Here’s an example. Let’s say you live in New York where the average SALT deduction was more than $21,000 a year, you would only be able to deduct $10,000. This adversely effects those living in areas with high state income taxes and high property taxes.
So, if you live in areas like New York, New Jersey, or California, you might want to consider relocating to lower taxed states to save some money. The tax savings alone could be used to fuel your new lifestyle. And, for some other good news, the mortgage interest deduction survived. So if you buy a new home, you can deduct the mortgage interest up to $750,000.
You could have a win-win-win scenario by relocating—a new life in an energy-efficient home in a great community, a deduction for mortgage interest, and lower taxes.
10 Lowest State
Income Tax States | No Tax States
Only Tax Dividend and Interest
10 Highest State Income Tax State
New Jersey 8.97%
New York 8.82%
10 Lowest Property | Tax States
#4 New Mexico
#9 West Virginia
#10 North Carolina
10 Highest Property | Tax States
#1 New Jersey
#2 New Hampshire
#4 New York
#7 Rhode Island
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