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JohnH

SALT Limitation - Interesting Twist

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While reviewing a client's return yesterday, I noticed that my software (Drake) had switched him to using the sales tax deduction, even though he had significant income withholding. It took me a while to figure this out, but I finally noticed that it was related to the fact that he had paid about $ 8,500 in property tax.  His sales tax table deduction was slightly higher than the remaining space between his property taxes and the $10K SALT limitation, so Drake switched him over without any input from me.  That eliminates jumping through any hoops to calculate the taxable portion of the state income tax deduction next year.  I suppose most tax software would take that same approach.  Nice touch. 

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This only matters if the TP itemizes correct?  I prepared a return yesterday, TP had $10,002 in property taxes not including state withholdings, but was way under the MFJ $24K SD, I stilled entered the amounts on Sch A because the property tax amount flows into the state for a credit.

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It can matter if there is a state tax refund. Claiming sales tax makes the state refund not taxable next year. And my state (MD) allows sales tax as an itemized deduction but not income tax, so it can save state taxes too!

On one return this year, I did an analysis to see if it was better to force itemized (it was) and then if it was better to take sales tax instead of income tax (it wasn't). It's not as simple of a decision as it seems on the surface.

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Thankfully, NC changed its rules to allow taxpayers who claim the standard deduction on the Federal to switch to itemized on the state if it works to their advantage.  There are still some adjustments to be made on the state return, but it's worth evaluating. 

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23 hours ago, JohnH said:

Thankfully, NC changed its rules to allow taxpayers who claim the standard deduction on the Federal to switch to itemized on the state if it works to their advantage.  There are still some adjustments to be made on the state return, but it's worth evaluating. 

Virginia Voted Friday to "de-couple" from the Feds with itemizing, but MD voted to stay in the stone age.

Rich

 

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Not sure I understand. On VA ,I thought what ever you did on Fed sch a or standard you had to to do the same on state. Is this a change to VA?

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KY has always allowed Sch A itemizing even if you took the standard deduction on Fed.  But new Ky tax law is now limiting Sch A to mortgage interest and charitable contributions only.  Still the Ky standard deduction is very low so itemizing still helps out.

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I am finding that most of my clients who take the Fed Std Ded are itemizing in CA.  It has nothing to do with the SALT limitation in most cases, it is mortgage interest and charitable contributions that takes them over the CA std deduction amount.

Tom
Modesto, CA

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