Tax Cuts and Jobs Act Puts $10,000 Aggregate Limit on State and Local Tax Deduction

Tax Cuts and Jobs Act Puts $10,000 Aggregate Limit on State and Local Tax Deduction

02/21/2018 Tags: Announcements, In the News

The Tax Cuts and Jobs Act (TCJA) places new limits on individuals’ itemized deductions of non-business taxes.

For tax years 2018 through 2025, the TCJA limits the aggregate deduction for state and local real property taxes; state and local personal property taxes, state and local, and foreign income, war profits, and excess profits taxes; and general sales taxes (if elected) for any tax year to $10,000 ($5,000 for married filing separately). However, the $10,000 limit does not apply to taxes paid or accrued in carrying on a trade or business or in an activity engaged in for the production of income. The deduction for foreign real property taxes is completely eliminated unless they are paid or accrued in carrying on a trade or business or in an activity engaged in for profit.

To prevent avoidance of the $10,000 deduction limit by prepayment in 2017 of future taxes, the TCJA treats any amount paid in 2017 for a state or local income tax imposed for a tax year beginning in 2018 as paid in the last day of the 2018 tax year. Therefore, an individual may not claim an itemized deduction in 2017 on a pre-payment of income tax for a future tax year in order to avoid the $10,000 aggregate limitation.

Please call us if you wish to discuss how these changes could affect your particular tax situation and steps you might consider in response to them.


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