Author: Matthew Frankel | February 16, 2018
Residents of these states could feel the sting
The Tax Cuts and Jobs Act will reduce taxes for most Americans when they file their 2018 tax returns. However, not everyone’s taxes will go down, particularly those households that generally claim big deductions for state and local income taxes, sales taxes, and real estate taxes.
These are collectively known as the SALT deduction, and while the deduction has not been repealed completely as many GOP lawmakers were aiming to do, it has been limited to $10,000 per year. This could have the effect of higher taxes for some people, particularly residents of these seven high-tax states.
Note: All figures and data are based on the 2015 tax year, which is the most recent year for which finalized data is available as of this writing.
The Garden State has the highest real estate taxes in the nation. The average New Jersey homeowner who itemizes deductions claimed a $9,491 deduction for their real estate taxes in 2015.
In addition, the average deduction for state and local income taxes in New Jersey is even higher, at $10,998. Since the real estate and income tax deductions are used by about 36% and 35% of New Jersey households, respectively, it’s fair to say that many New Jersey taxpayers are used to deducting well over $10,000 in taxes and could feel the sting from the limited SALT deduction on their 2018 tax return.
New York’s real estate taxes aren’t quite as high as New Jersey’s, but New Yorkers still deduct the second-most real estate taxes per return, at an average of $8,371.
More significantly, New Yorkers pay a high amount of state and local income taxes, with more than 30% of New Yorkers’ tax returns claiming an average income tax deduction of $17,696. In other words, the average New York household who itemizes deductions could lose out on $7,696 of income tax deduction, as well as their entire deduction for real estate taxes.
When many people hear the phrase “high-tax state,” California is the first thing to come to mind. 28.2% of Californians deduct their income taxes, at an average of $15,977 per household. In fact, California’s income tax deductions make up more than 15% of the U.S. total.
In addition, while California’s property tax rate isn’t the highest, elevated real estate values result in an average $5,877 real estate tax deduction, well above the national average.
A high percentage of Connecticut residents take advantage of the SALT deduction. Nearly 38% of Connecticut households deduct their income taxes at an average of $13,222 per household, and 37% deduct real estate taxes. With an average real estate deduction of $7,635, the average Connecticut homeowner who itemizes deductions takes SALT deduction for more than double the new $10,000 limit.
While it’s not a state, Washington D.C. residents will certainly feel the sting of the SALT limitation. 38% of D.C. households deduct their income taxes, with an average deduction of $14,041 per household. Combined with the 25% of households who deduct an average of $4,529 worth of real estate taxes, and D.C. itemizers are likely not too happy about the new SALT limitation.
At about $9,793, Maryland’s average income tax deduction is actually a bit below the U.S. average. However, more than 43% of households claim it -- the highest percentage of any state. Additionally, 36.4% of Maryland taxpayers claim a real estate tax deduction, with an average of $4,399 per return.
New Hampshire has one of the highest per-capita real estate tax deductions in the United States, with an average of $7,359 for the 29% of households who claim it. To be fair, the average New Hampshire state and local income tax deduction of $5,822 is on the low end, but these can easily combine to more than $10,000 for many households.
The higher standard deduction will help some of the SALT “victims”
To be fair, it’s important to realize that the higher standard deduction will help some of the households that would otherwise lose some of their SALT deduction. For example, if a married couple paid $15,000 in income taxes and $7,000 in real estate taxes and had no other itemizable deductions, the new $24,000 standard deduction would be the better choice.
However, many Americans, especially in the seven places discussed here, are likely to take a hit from the new $10,000 SALT deduction cap.
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