State and local tax deduction for 2019–2020

The state and local tax deduction — also known as the SALT deduction — has changed quite a bit under the Tax Cuts and Jobs Act. But you may still qualify. Here’s everything you need to know.

What is the state and local tax deduction?

The SALT deduction allows taxpayers to claim any state and local taxes they paid for the year. It reduces your taxable income dollar for dollar. But you must itemize to claim it.

How much is the state and local tax deduction worth in 2019–2020?

Prior to the Tax Cuts and Jobs Act, the SALT deduction was unlimited. For 2019 and 2020, taxpayers can’t deduct more than $10,000 or $5,000 if they’re married and filing separately.

Limits

The SALT deduction has these limits:

• You must itemize

  The IRS doesn’t allow taxpayers to claim the SALT deduction using the standard deduction.

• Must claim either income or sales tax

  Anyone can claim property tax, but you can’t claim both income and sales tax. The IRS requires you to choose one or the other.

• Can only claim payments made in the current year

  If you receive a bill this year but wait to pay it next year, you can’t claim it on this year’s tax return.

How much was the state and local tax deduction worth in previous years?

These are the SALT deduction limits for the past three years:

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Who is most impacted by the SALT deduction limit?

Taxpayers living in states with high property, income or sales taxes are most impacted by the SALT deduction limit.

Here are 19 states that have average SALT claims over $10,000 each tax year:

Who qualifies for the state and local tax deduction?

Anyone who pays property, sales or income tax at the state or local level this year qualifies for the SALT deduction.

What qualifies for the deduction?

You can claim the following items under the SALT deduction:

How to claim the state and local tax deduction

You use Schedule A to itemize your taxes and claim the SALT deduction. The process looks like this:

1. Gather any W2s and financial documents that show how much you paid in state and local taxes this year.
2. List the total amount of your state and local income taxes or your general sales taxes on Form 1040, line 5a. Remember, you can only choose one.
3. List your state and local real estate taxes on line 5b.
4. List your state and local personal property taxes on line 5c.
5. Add up lines 5a, 5b and 5c.
6. If your total is $10,000 or less, write the full amount on line 5e. If your total is more than $10,000, write $10,000 on line 5e. You’ll use $5,000 as your threshold limit if you’re married and filing separately.

What to watch out for

Watch out for these potential drawbacks if you’re thinking of claiming the SALT deduction:

• Itemizing may not be the right choice. You should only claim the SALT deduction if the total of your itemized deductions is greater than your standard deduction.
• Current limits expire in 2025. If the Tax Cut and Jobs Act expires in 2025 as planned, the SALT deduction limits may change.
• Keep detailed records. If you plan on claiming the SALT deduction, you’ll need to keep detailed records of checks, bank statements, W2s and any other forms proving you paid state and local taxes this year.

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Related tax credits or deductions

If you qualify for the SALT deduction, you may also qualify for these related deductions:

Bottom line

The SALT deduction isn’t unlimited like it used to be. But you should still claim it if your itemized deductions are greater than your standard deduction.

Simplify the process by hiring a professional or shopping around for an online service that can help you file your taxes this season.These services can help you figure out what deductions you qualify for based on a series of questions. They’ll even calculate your itemized and standard deductions to see which one saves you the most money.

Frequently asked questions

• Should I claim sales tax or income tax under the SALT deduction?

  If you live in a state that has high income tax but low sales tax — like California or New York — you may save more money by deducting income tax.

  But if you live in a state that has high sales tax — like Texas or Louisiana — it may make more sense to claim the sales tax.

• Can I work around the SALT cap limit?

  Many high-tax states such as New Jersey, New York, Connecticut and Oregon have passed laws that allow taxpayers to convert part of their SALT payments into charitable contributions. These contributions are fully deductible as long as they don’t exceed 60% of a taxpayer’s adjusted gross income. But the IRS has since passed regulations aimed at preventing these workarounds, so it’s best to consult a tax professional in your state for more information.

• Does SALT deduction include mortgage interest?

  No. You can claim personal and real estate property taxes under the SALT deduction but not mortgage interest.

  If you paid mortgage interest this year, see if you qualify for the mortgage interest deduction.