The Tax Cuts and Jobs Act (TCJA) was one of the largest pieces of tax legislation passed within the last few decades. Of the multitude of changes to the tax law that it contained, the most contentious aspect of the legislation was (and remains) the limitation of the deduction for state and local taxes paid (SALT). The TCJA capped the deduction for state and local taxes (income taxes, real estate taxes, personal property taxes, sales taxes) paid to a maximum of $10,000 ($5,000 in the case of a married individual filing a separate return) in a given tax year. Taxpayers that live in high tax states were affected most by the limitation, causing them to challenge the legislation or develop alternative methods to work around the limitation. With a Biden presidency and closely split Congress, the SALT cap may be modified or even fully repealed within the next year.
The current limitation applies to both single and married filing jointly taxpayers. Since there is no adjustment to the cap for married filing jointly taxpayers, a bill has been introduced in the Senate that would modify the limitation to double the maximum deduction to $20,000 for married filing jointly taxpayers. This modification would apply to taxable years beginning after December 31, 2020.
Additionally, Democratic and Republican House members are forming a bipartisan group to push for a full repeal of the $10,000 cap. The group is forming as the House begins drafting and negotiating President Biden’s planned tax increases and infrastructure program. Some members of Congress have indicated that they will not vote for Biden’s infrastructure plan unless the repeal of the SALT cap is included in the legislation.
With mounting pressure and bipartisan support forming against the SALT cap, the likelihood of at least a modification to the $10,000 cap seems to be possible in the near future. The challenge that any amount of modification or repeal of the cap will face is that it will have to be weighed against the cost of the upcoming infrastructure plan and the need to raise more tax revenue to fund it. For more information or guidance, please contact Anatoli Pilchtchikov or Michael Adam at 301.231.6200.