SALT tax deduction: How does the SALT deduction work?

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The state and local tax (SALT) deduction has been in place since the introduction of federal income tax in the United States of America in 1913, and after generating estimated revenues of $ 100.9 billion in fiscal 2017, the Tax Reductions and Employment Act (TCJA) meant that two years later that figure had fallen to $ 21.2 billion.

The arrival of TCJA meant that the standard deduction amount had been increased, which reduced the number of taxpayers eligible for deductions and capped the overall SALT deduction at $ 10,000 per return for single filers, heads of households, and married taxpayers filing jointly. For married taxpayers filing separately, the cap is $ 5,000. The provision of this law will expire after 2025.

Who is claiming the SALT deduction?

Before TCJA, about 30 percent of tax filers chose to put their deductions on their federal income tax returns. Those who were most likely to benefit from the SALT deduction were high-income households.

In 2017, 16% of tax filers with incomes between $ 20,000 and $ 50,000 requested the SEL deduction, while this figure rises to 76% for filers with income between $ 100,000 and $ 200,000, and it rises to 90% for filers with income over $ 200,000.

People filing their income tax returns with income over $ 100,000 represented 18% of all tax filers, but they represented about 78% of the total dollar amount reported. SEL deductions, the average claim in this group being $ 22,000.

Although most high-income taxpayers choose to claim a SEL deduction, the benefit was limited or eliminated for many due to the federal individual Alternative minimum tax (AMT). It is a parallel income tax with fewer exemptions and deductions.

Some states have passed or are considering adopting new legislation that would allow taxpayers to make charitable donations to government funds in exchange for state tax credits.


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