Next Up in the Tax Queue: SALT Relief for Married U.S. Taxpayers
Fresh off the latest bipartisan tax bill, the U.S. House of Representatives (the House) quickly shifted gears to tackle the current state and local tax (SALT) deduction cap under the SALT Marriage Penalty Elimination Act (SMPEA). The House Rules Committee cleared the proposed relief bill on Feb. 1, so it’s headed to a full House vote next.
Under the current rule, there is a $10,000 SALT deduction cap for single and joint-filing taxpayers who deduct local property, income and sales tax on their federal return. This deduction cap was created under the Tax Cuts and Jobs Act (TJCA) and is expected to sunset in 2026.
The new proposal raises the cap to $20,000, for the 2023 tax year only, for married couples who file jointly and have an adjusted gross income of less than $500,000. The $10,000 limit would revert back for the next two years until it sunsets in 2026, unless additional legislation is passed.
The SALT deduction typically includes state and local income taxes, property taxes and sales taxes for taxpayers who itemize their return versus taking the standard deduction. However, taxpayers must choose between deducting state and local income taxes or state and local sales taxes. They cannot deduct both. With this, as well as the deduction limitation in mind, it’s important to evaluate whether to deduct sales tax versus income tax when itemizing deductions, depending on where you reside or if you’ve purchased any major items this year.
Our SALT pros will continue to monitor this proposal and its taxpayer impact for the 2024 filing season.