The Tax Cuts and Jobs Act (TCJA),1 which went into effect in 2018, is full of surprises that may prove costly for individual taxpayers. Like the Grinch who stole Christmas, Congress took away many deductions and limited others. Miscellaneous itemized deductions were eliminated altogether. However, the most radical change is the limit on state and local taxes (including property taxes) to $10,000 per year, per filer. For married couples in high tax jurisdictions like the District of Columbia, New York, and California, this could result in losing tens of thousands of dollars of deductions each year. Although tax brackets are lower, for most high-income earners this does not compensate for the loss of itemized deductions. (Note, however, that for taxpayers subject to the alternative minimum tax (AMT) who were limited in taking many of these deductions, there may be little or no impact.)
As an example, prior to 2018, a professional couple living in New York earning $750,000 per year may have deducted $60,000 in state income taxes, $13,000 in property taxes, and $10,000 in Miscellaneous Itemized Deductions. Instead of deducting $83,000, the limit on state, local, and property taxes (called “SALT”) reduces these deductions to $10,000. Mortgage interest and charitable deductions remain.
What can an individual do to avoid higher taxes when faced with the loss of significant deductions?
Read the full article here.