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What is the SALT deduction, and can you take advantage?

How to navigate the SALT deduction

Taxpayers facing heavy state or local taxes must decide whether to itemize deductions at filing time. A major factor in that decision: your local tax burden, or how much you pay in state, local and property taxes.

These taxes, and especially property taxes, vary tremendously depending on the city or town you live in. "Property taxes vary widely from state to state. It varies widely from household to household," said Sahang-Hee Hahn, a tax attorney based in Massachusetts.

They range from couple hundred dollars a year to tens of thousands of dollars in the most expensive areas of the country, according to an analysis by ATTOM, a real estate research firm. In 2018 (the most recent year available), a typical property tax payment in Benton county, Missouri, came to $164. In Westchester county, New York, the average payment was $17,392.

You could also benefit from the SALT deduction if you paid a lot in state or local income taxes. You can also deduct your payments of general sales taxes, instead of taking state, local or property tax deductions.

Something to keep in mind — there's a limit to how much you can deduct. The Tax Cuts and Jobs Act, which took effect in 2018, capped the maximum SALT deduction to $10,000 ($5,000 for married individuals filing separately). That limit applies to all the state and local taxes combined.   

"You have to do the math," Hahn said. For a single filer, the standard deduction is $12,200 for last tax year. "I would have to ask myself, 'Would the itemized deductions, when tallied up, would that meet or exceed that $12,200 number?' If it doesn't, it's a lot of unnecessary work."

How to lower your chances of an IRS tax audit

Given that $10,000 cap on the SALT deduction, you would need to find more than $2,200 in deductions elsewhere to justify itemizing on your tax return. Other expenses that you might be able to deduct:

  • Mortgage interest (subject to a limit of $1 million or $750,000, depending on when you got the loan)
  • Medical or dental expenses (if they make up 7.5% of your income)
  • Donations to charity
  • Use of your home or car for business
  • Business-related travel expenses
  • Losses due to theft or a federally declared disaster

Most people benefit from taking the standard deduction, but it's worth checking if you fall into the other category. In 2017 (the most recent year for which detailed tax data is available), 34 million tax filers wrote off state and local income taxes, and 39 million wrote off real estate taxes. Since then, as many as 11 million Americans have been negatively hit by the $10,000 cap, the government estimates. 

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