State And Local Tax Deduction or SALT
Important: The 2017 tax reform aw limited the
state and local tax (SALT) deductions at $10,000 for the tax years 2018 through 2025. The SALT deduction limit increase to $80,000 was NOT approved as the
Build Back Better Act failed to pass. If changes to the SALT deduction are ever made, we will update this page; keep up to date with
tax news. Assure your returns are filed accurately by
filing with eFile.com; the eFile Tax App is updated with the IRS tax code every year so you always claim the right SALT deduction you are entitle to plus applicable
tax deductions and
tax credits.
SALT
Deduction
The SALT deduction for state and local taxes can only be claimed if you itemize on your tax return - that is, when your itemized deductions are greater than your standard deduction and you file or e-file Schedule A with your return. Your standard deduction is a fixed amount that you can deduct based on your filing status. Itemized deductions are the total deductions that are listed on your Schedule A and they are not a fixed amount.
Does SALT Apply to You?
Due to tax reform signed into law in December 2017, the standard deduction that almost doubled for 2018 Tax Returns is increased each year due to inflation and other factors (see table below). Since the standard deduction increased, it is generally not beneficial for most taxpayers to itemize deductions on their returns and the changes to the state and local tax (SALT) deduction won’t affect them. Additionally, the tax reform in 2018 put a cap for all filers at $10,000. You might ask, does this apply to you? The easiest and most accurate way to find out is to start a free tax return on eFile.com; based on your tax situation, we will determine what is most tax advantageous to you and whether you should itemize or use the standard deduction.
If your itemized deductions are greater than your standard deduction listed below, you should consider itemizing. Find out whether you should itemize or use the standard deduction.
What Is the SALT Deduction?
With recent tax reform, a lot of folks are talking about it. Does it mean I can deduct the amount of salt that I put on my popcorn? Can I deduct which kind of salt I use: Sea, Kosher, Himalayan, perhaps? The answer is no, none of these things! The SALT deduction doesn't have anything to do with seasonings or spices. It actually stands for state and local taxes; in other words, S-A-L-T.
The SALT deduction is not new and has been around for a while but was changed due to tax reform and the subsequent Tax Cuts and Jobs Act signed into legislation in December of 2017. As a result of this legislation, the SALT deduction was reduced; during initial talks about tax reform, the SALT deduction was almost eliminated. After legislators realized the impact of this, it was decided to simply reduce the SALT deduction to $10,000 ($5,000 if you’re married and file separately from your spouse). As a result, you can deduct no more than $10,000 in property taxes plus state income or sales taxes.
What does this mean for you and how will it affect your next tax return? The eFile app is updated every year to reflect current tax law so you do not need to keep up with these changes - let us work for you!
If you pay state and local taxes during 2022 in the amount of $15,000, then you are allowed to take a federal tax deduction of $10,000 on your IRS tax return if you itemize. If you paid $5,000 in state taxes, then you can deduct the full $5,000 of state taxes paid on your federal return as an itemized deduction. There was talk that the SALT deduction limit would be increased from $10,000 to $80,000 as part of the Build Back Better Plan - this bill failed in the House.
SALT Deduction Explained
The SALT deduction is a tax deduction that is claimed only if you itemize - that is, your itemized deductions are greater than your standard deduction and you file a Schedule A, which you can prepare and e-file on eFile.com. Your standard deduction is a fixed amount that you can deduct based on your filing status (you get an additional amount added to your standard deduction if you are 65 or older). Itemized deductions are the total deductions that are listed out on your Schedule A and they are not a fixed amount.
The SALT deduction can include all or some of the following:
State Income Taxes
State income taxes withheld from your salary or pay. This is listed on Forms W-2, 1099-G, 1099-R, or other form.
If your total itemized deductions are greater than your standard deduction AND you don't deduct sales taxes.
Local Income Taxes
Local income taxes withheld from your salary or pay. This is listed on Forms W-2, 1099-G, 1099-R, or other form.
If your total itemized deductions are greater than your standard deduction AND you don't deduct sales taxes.
Prior Year State and Local Income Tax Payments
State and local income taxes paid in 2022 for a PRIOR tax year; for example, this would be taxes you paid in 2022 for 2021. Do not include penalties and interest paid in 2022.
If your total itemized deductions are greater than your standard deduction AND you don't deduct sales taxes.
State and Local Estimated Tax Payments
State and local estimated tax payments made during 2022 including any part of a prior year refund that you chose to have credited to your 2021 state or local income taxes.
If your total itemized deductions are greater than your standard deduction AND you don't deduct sales taxes.
Real Estate Property Taxes
Real estate property taxes that you paid on a property that you owned that wasn't for a business.
If your total itemized deductions are greater than your standard deduction.
Personal Property Taxes
Personal property taxes you paid if the tax was based on the item’s annual value. For most people, this be would a large item such as a car or a boat.
If your total itemized deductions are greater than your standard deduction.
State Related Mandatory Contributions
Mandatory contributions you made to any state-related disability funds, unemployment or workmen's compensation funds, or family leave programs (this only applies to certain states such as California, Alaska, New Jersey, or Pennsylvania).
If your total itemized deductions are greater than your standard deduction.
State and Local Sales Taxes
State and local sales tax that you paid in for items such as food, clothing, medical supplies, a new car, or other expense. If you saved your receipts throughout the year, you can add up the total amount of sales taxes you actually paid and claim that amount.
If your total itemized deductions are greater than your standard deduction AND you don't deduct state and local income taxes.
State Refund
A state or local income tax refund (or credit or offset) should be included as income if you deducted the tax in an earlier year. The state or payer of the refund payer should send Form 1099-G to you by January 31 following the tax year in question.
The IRS will also receive a copy of the Form 1099-G. When you e-file your taxes on eFile.com, the tax app will calculate the amount for you and add it to Schedule 1.
Should You Deduct SALT?
If you itemize deductions on your federal tax return (in other words, you do not take the standard deduction) you can choose to deduct the items above on your filed or e-filed Schedule A. Remember that it does not benefit you to itemize if your total itemized deductions are not greater than your standard deduction. See your standard deduction based on your filing status.
You can deduct property taxes AND state and local income taxes OR you can deduct property taxes AND sales taxes if you itemize your taxes. You cannot deduct state and local income taxes AND sales taxes. If you live in a state that has high income taxes, such as California, New Jersey, Maryland and New York, you might opt to deduct state and local income taxes. If you live in a state that has high sales taxes, such as Arkansas or Louisiana, you might choose to deduct sales taxes. Generally, if you itemize, most taxpayers decide to deduct income taxes since they are usually higher than sales taxes.
Confused? Let the eFile Tax App do the work for you.
Who can claim the SALT deduction? If you are a person with a single filing status, taking the largest possible amount for your SALT deduction at $10,000, the total amount of the rest of your itemized deductions would need to be more than $2,950 to exceed your standard deduction amount of $12,950 so that you can itemize and deduct SALT. If you are filing married filing jointly, your total itemized deductions would need to be more than $25,900, and so on. If your itemized deductions are not greater than your standard deduction, it is in your best interest to take the standard deduction.
Does all this sound too complicated for you? We understand this, so remember that when you file your return on eFile.com, all you need to do is enter your SALT amounts. First, we will automatically select the most beneficial deduction method for you (standard or itemized deduction) based on the information you enter to give the most refund or least taxes owed. You can also choose to force one way or the other if you wish to do that. If itemizing your deductions is the best for you, then your SALT information will be included on your Schedule A which we will prepare for you.
The History of the SALT Deduction
The SALT deduction has been a part of our federal income tax since 1913. The SALT deduction is one of the largest federal tax expenditures as it costs the federal government trillions of dollars in lost revenue opportunities. You can see why the federal government was looking to eliminate it at first.
According to a report from the Tax Policy Center, taxpayers with incomes of over $100,000 benefit the most from the SALT deduction. However for about half the number of all taxpayers, the decrease in the SALT deduction means that these taxpayers will see the effect of this as an increase in their taxes.
Taxpayers with lower incomes will not be impacted as much from the decrease of the SALT deduction. However, the residual effect of the reduction of SALT will be that state and local governments might choose to lower their tax rates (because folks are paying higher federal taxes) and this would result in lower dollars amounts for state and local programs and services.
SALT Deduction on Your Return on eFile.com
We make all these decisions easy for you when it comes to SALT. When you prepare and e-file your return on eFile.com, you can enter your SALT deduction on the Taxes Paid screen. You can report state and local income taxes, sales taxes, real estate taxes, or personal property taxes there. We will calculate the deduction amount for you and report it on your return.
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