By Anthony Michael
The tax reform debate has subsided, and for better or worse, the new law will go into effect this year. Unfortunately, the new bill is anything but less complicated than the previous – so don’t expect to fill out your 2018 returns on a single post-card.
One of the most controversial provisions included in the new law is the $10,000 limit for State and Local tax deductions (or SALT for short). Perhaps you’ve read about the rush to prepay State and Local taxes, or the workarounds that States are exploring to avoid the $10,000 cap. Ultimately, this provision will be the tipping point for many households in high tax states, such as New York, New Jersey, Illinois, California, and Texas.
If you would like to understand how this provision, along with the other changes, will affect your 2018 tax liability, I would recommend this tax bill calculator, which was created by The Washington Post.
How will the SALT deduction work under the new law?
Moving forward, taxpayers who itemize deductions will be able to deduct the following taxes paid at the state and local level:
- Individual income taxes
- Sales taxes
- Property taxes
The sum of these taxes will be capped at $10,000 – meaning any state and local taxes paid above this threshold will be nondeductible. Since Texas is a no income tax state, Texans will be afforded some breathing room for sales and property tax deductions. Despite this, there still exists many “itemizers” that will be limited by the $10,000 cap.
Using 2015 IRS data, we examined the average SALT deduction for every ZIP Code in Texas, to see whose average SALT deduction exceeded the new $10,000 cap. In total, 833 Texas ZIP Codes had average SALT deductions above $10,000 in 2015. These ZIP Codes are concentrated in Texas’ major metro areas, but stretch across the entire state.
To see if your ZIP Code is one of them, follow this link to view an interactive map of Texas ZIP Codes. The map is color coded to illustrate the percent of itemized returns. Hover over each ZIP Code to see this percentage, and the average SALT deduction in 2015.
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