Repeal of State and Local Income Tax (SALT) Deduction
By now, you have probably heard that the 2017 Tax Cuts and Jobs Act has limited the deduction for state and local income tax (SALT) to $10,000 for all tax filers, including tax filers who file their tax returns as married filing jointly. If you are a California resident, this may be very concerning for you.
The good news is that this change is set to automatically expire after December 31, 2025. The bad news is that Californians will be very limited in what they can deduct in terms of state income tax and property tax for the next several years.
California legislators have proposed several bills to hopefully alleviate the challenges that the new federal tax bill has presented.
First, there is AB 1864, the Prosperous Economy and Payer Protection through Equitable Rates Act, or PEPPER, which was introduced by Assembly Member Kiley. This proposed legislation would have allowed taxpayers to deduct their full federal tax liability on their state tax return. While this proposed legislation may seem appealing to California residents, it was estimated that it would cost approximately $400 billion. As of April 9, 2018, this proposed legislation officially failed to pass.
There is also SB 227 introduced by Senator De Leon. This bill would allow California taxpayers to make charitable contributions to the state to mitigate a new cap on the federal deduction for SALT. The bill has passed the Senate and will continue to the Assembly.
The Franchise Tax Board’s analysis on this bill indicates that the bill assumes the California Excellence Fund, which taxpayers would contribute to, would be allowed as a charitable contribution deduction on the federal income tax return.
For now, California taxpayers will have to wait and see how this legislation turns out.
If you have any questions about the new tax laws, and what options you have, you should consult with a tax lawyer. Christina Weed has an LL.M. in Taxation, and assists clients with their tax law questions.
Mendes Weed, LLP is here to help you if you have any questions. (925) 390-3222.
The tips and materials provided on this page are for informational purposes only, offered as public service. No information on this website should be considered legal advice or used as a substitute for legal advice. For legal advice, you should contact an attorney directly.