November is the time of year when we are busy doing year end tax projections for many of our clients. As has been the case of late, this year is complicated by pending legislation in Congress. This seems to have been the case for the last 4 or 5 years. Year end is approaching and considerable and material tax changes are proposed. It makes it difficult to provide advice when we don’t know what the new law will look like.
This year’s version of the annual change proposals includes some tax changes that are unlikely to impact most of our clients, with one exception. It seems likely that some change will occur to the deductibility of so-called SALT (State and Local Taxes). The House and Senate have differing versions of the legislation but both would expand the deduction for SALT.
As you may recall, prior to the enactment of the Tax Cuts and Jobs Act of 2017 (TCJA), state and local taxes as well real property taxes were deductible in full for taxpayer’s that itemized their deductions. TCJA changed that deduction by capping the amount to a maximum of $10,000. Any SALT payments in excess of $10,000 were simply non-deductible. While there were other tax deductions intended to mute the impact of this cap, it clearly increased tax burdens on those that live in high tax states. This includes residents of MD, DC, NY, NJ, CA and others.
So basically since the passage of TCJA there has been some hand-wringing on SALT and attempts were made to return the deductions. Now, four years later, it appears SOMETHING will change as a part of the current budget battle. However, the House and the Senate have differing versions of what the new SALT deduction would look like. The House version would simply increase the cap to something like $75-80,000 while the Senate version will allow full deductibility but only for taxpayers below a certain income level. Both appear to allow the deduction retroactively to 1/1/2021.
Until this issue is resolved in Congress it is difficult to project client tax liabilities. I have no idea when it will be finalized and voted on and, frankly, following the daily political machinations is somewhat exhausting. My hope is that it will be passed sooner rather than later. My fear is that it will be passed so late in the year that we aren’t able to strategize with clients on the legislation’s impact for 2021. Time will tell but we will be in touch as soon as we have more clarity.