Based on information released by President Trump's administration and the GOP as a whole, the state and local taxes deduction may no longer exist once tax reform takes effect (which could happen as soon as next year). Republicans argue that substituting a larger standard deduction for many of the itemized deductions -- including this one -- would simplify tax preparation without costing taxpayers more. But for some taxpayers, losing the SALT deduction would result in a significantly higher tax bill.

What is the state and local taxes deduction (SALT)?

The state and local taxes deduction allows you to deduct the cost of any non-federal taxes that you paid during the year. You can choose to deduct either your state income taxes or your state sales taxes, plus any other state and local taxes you paid.

The idea behind the SALT deduction is that it's unfair to pay taxes on your taxes. In other words, let's say you paid your state $2,000 in income taxes. Being able to deduct that $2,000 from your federal taxes means that you won't have to pay federal income taxes on it. Without the SALT deduction, you would have to pay what amounts to double taxation on some of your income.

This is an itemized deduction, meaning that in order to claim, it you'll have to choose itemizing instead of taking the standard deduction. Like other itemized deductions, the SALT deduction can be claimed on the Schedule A form of your federal tax return.

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This is a major deduction

Believe it or not, the state and local taxes deduction is the single largest itemized deduction, at least for high-income households. But since nearly every taxpayer who itemizes claims the SALT deduction, its utility cuts across income lines. In fact, for 2015 the average amount claimed for the state and local taxes deduction was $12,471 -- not exactly chump change. It's a particularly powerful tax break for taxpayers subject to high state income taxes. For example, the SALT deduction for New Yorkers in 2015 averaged $22,169. The SALT deduction is forecast to total over $100 billion for one year by 2018 -- assuming it's not repealed before then.

The future of the SALT deduction

The tax reform framework document released in late September spelled out the GOP's most pressing tax priorities. Among other things, the document specified that itemized deductions would be largely eliminated, with only the home mortgage interest and charitable contribution deductions remaining.

This doesn't necessarily mean that the state and local taxes deduction will be completely eliminated, but it does indicate that it may not be an itemized deduction in the future. House Speaker Paul Ryan supports completely eliminating the SALT deduction, while other GOP members favor putting an income limit on the deduction, suggesting potential caps of between $200,000 and $400,000 in annual income.

The Tax Cuts and Jobs Act, the tax reform bill put forth by members of the House of Representatives, repeals the individual deduction for state and local income and sales taxes but allows taxpayers to deduct property taxes of up to $10,000. If this legislation passes, the change will take effect in the 2018 tax year. Meanwhile, the Senate's tax reform bill completely eliminates the SALT deduction, property taxes and all.

What does this mean for you?

If the GOP gets its way, high-income taxpayers at least will likely lose the SALT deduction. If your annual income is $200,000 or above, you'd better prepare for a substantially higher federal income tax bill, possibly as early as the 2018 tax year. (Technically, if Congress passes tax reform before the end of the year, it could make the provisions retroactive, which would mean they'd apply to the 2017 tax year -- but it's unlikely they'll do so.)

Taxpayers with less than $200,000 in annual income are less likely to take a major hit from this particular piece of tax reform. It's more likely they'll still have access to the SALT deduction in some form, and even if they don't, the deduction is typically small for non-high-income households.

Should you lose access to the SALT deduction, reducing your state and local taxes as much as possible will have a much bigger impact on your total tax bill. Without the SALT deduction, every penny you save on state taxes will earn you a break on your federal taxes, too. If that happens, consider having a tax professional prepare your returns for you so that you can take advantage of every possible break on both your state and federal taxes.