In late December, the House passed a bill, the Restoring Tax Fairness for States and Localities Act (H.R.5377), that would temporarily remove the SALT (state and local tax) deduction cap, if approved by the Senate.
Before the Tax Cuts and Jobs Act, enacted in 2017, homeowners could deduct any amount paid toward state income taxes, local income taxes and property taxes. Due to the revamped tax law, however, the SALT deduction has been capped at $10,000 per return, or $5,000 for those married but filing separate.
The new bill would increase the SALT cap from $10,000 to $20,000 for those filing joint returns in 2019, and would eliminate the cap for the 2020 and 2021 filing years. Support of the cap has been controversial, with some lawmakers believing the deduction largely supports the wealthy, providing an unfair advantage. Others, however, believe the average earner with even a modest home can be negatively affected by the cap, as homes in states with higher property taxes can quickly expend the entire $10,000 SALT limit.
“The SALT cap is simply unfair. It imposes a marriage penalty through its uniform limit for single and joint filers and, while the standard deduction is pegged to inflation, the SALT cap is not,” National Association of REALTORS® President Vince Malta tells RISMedia. “Unless these policies are changed, more and more Americans will find that the tax incentives of owning and buying a home will diminish with each passing year. NAR applauds the House for passing this bill and will continue to push for fairness for home and property owners in the U.S. tax code.”
Many high-cost of living states with surging home prices, such as California, are in support of increasing the cap or removing it altogether, believing the cap hurts the real estate industry by removing a substantial tax deduction for a large percentage of homeowners.
At the time of the House passage, California Association of REALTORS® President Jeanne Radsick released the following statement:
“We are pleased that the House has passed a bill to temporarily eliminate the cap on the amount of state and local tax that taxpayers can deduct on their federal tax returns. The combined hit of a reduction in the mortgage interest deduction and current $10,000 SALT cap in the tax law has disproportionately hurt taxpayers and real estate in California. Ensuring the tax code incentivizes housing and real estate will continue to be a top priority for REALTORS®, and C.A.R. thanks the many California Congressional members who support easing the double taxation penalty that harms California homeowners.”
The Senate has not yet voted on the bill.
Stay tuned to RISMedia for more developments.
