State & Local Tax Deductions

Taxpayers can deduct some state and local taxes from their federal income tax return under State and Local Tax (SALT) deductions. Though it has certain significant requirements and restrictions, this deduction can assist lower the amount of income payable to federal taxes.

SALT Deductions are What?

SALT deductions consist of:

• State and Local Income Taxes: This can cover taxes on income paid to your state or local government. For some states, this could be a flat rate; others have a tiered tax structure.
• Sales Taxes: You may choose to deduct state and local sales taxes rather than state income taxes. This is especially beneficial in places without an income tax, such Florida or Texas.
• Property Taxes: This covers property taxes on personal property, such as cars or boats, as well as real properties.

The SALT Deduction Cap

• SALT deductions were capped by the 2017 Tax Cuts and Jobs Act (TCJA).
• From 2018 to 2025, taxpayers may only deduct up to $10,000 for state and local taxes, which includes income, sales, and property taxes combined.
• Married couples filing separately have a SALT limit of $5,000. Effect on High-Tax States:
  • Especially for taxpayers in high-tax states—where property and state income taxes are high—this restriction has been a major shift.
  • Before the TCJA, SALT deductions had no limit; taxpayers could write off the whole sum of their state and local taxes.

Deciding Between Sales Tax and Income Tax Deductions

Should you reside in a state with income taxes, you will usually wish to deduct those taxes. On the other hand, you might gain from deducting sales tax instead if your state has no income tax or you made significant purchases subject to sales tax.

You may either:

1. Estimate your sales tax using the IRS Sales Tax Deduction Calculator, which considers your income and region.
2. If you maintained track of revenues, subtract the actual yearly sales tax you paid.

Deductions by Itemizing

• SALT deductions are itemized deductions, hence you may only claim them should you decide to itemize rather than use the standard deduction.
• For heads of household, the standard deduction for 2024 is $23,800.
• For married couples filing jointly, the standard deduction for 2024 is $31,400.
• For single taxpayers, the standard deduction for 2024 is $15,700. Itemizing may save you more money if your total itemized deductions—including SALT, mortgage interest, charitable contributions, etc.—exceed the standard deduction for your filing status.

High SALT Deduction Effects

Allowing companies to pay state taxes on behalf of individuals.

The SALT cap can greatly limit high-tax state taxpayers’ capacity to deduct local and state taxes.

Some governments have tried to avoid the SALT cap by using workarounds like:

State-level charitable contribution programs.

This entry was posted on Thursday, April 3rd, 2025 at 10:34 pm and is filed under Deductions. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.