What is fair?
That question is at the heart of a new proposal introduced in the House last week. The bill, H.R. 7160, called the SALT Marriage Penalty Elimination Act, would double the cap on the state and local tax (SALT) deduction—but just for one year.
Background
When you file your tax return, you have the option of itemizing your deductions or claiming the standard deduction. Most taxpayers opt for the latter. That’s especially true since 2017 tax reform—the Tax Cuts and Jobs Act—doubled the standard deduction.
In 2024, the standard deduction is $14,600 for individuals and $29,200 for married couples filing jointly. Here are the 2024 numbers for all taxpayers:
Standard Deduction Amounts 2024
Kelly Phillips Erb
If you itemize your deductions, you can deduct, among other things, your state and local taxes on your Schedule A. That includes state and local income taxes (or sales taxes), as well as property taxes.
Beginning in the 2018 tax year, Congress capped the total amount that taxpayers can deduct for state and local taxes at $10,000 for all taxpayers—that means that the cap applies equally to individuals and married couples filing jointly. That means that even if your combined state and local tax bills top, say, $40,000, you’re limited to $10,000 (assuming you itemize). Along with many other individual provisions in the 2017 law, the cap is set to expire at the end of 2025.
The Problem
For years, taxpayers in impacted areas—those with higher state and local tax burdens—have complained about the cap.
Where do those taxpayers live?
According to the Tax Foundation, the 11 counties with the highest median property tax payments all have bills exceeding $10,000. Six of those are located in New Jersey (Bergen, Essex, Hunterdon, Morris, Passaic, and Union Counties), four are in New York (Nassau, New York, Rockland, and Westchester Counties), and one is in Virginia (Falls Church).
On the state level, in 2021, New Jersey had the highest effective rate on owner-occupied property in the country, followed by Illinois, New Hampshire, Vermont and Connecticut. Texas, Nebraska, Wisconsin, Ohio, and Iowa rounded out the top ten.
When it comes to individual income tax burdens, WalletHub found that residents of New York topped the list, followed by those in Maryland, Oregon, Massachusetts, Delaware, Minnesota, California, Kentucky, Connecticut and Hawaii. For purposes of their rankings, tax burden was defined as the percentage of personal income paid towards state and local income taxes.
As a result of the cap, many states have instituted or suggested workarounds. But, for years, there’s been no real movement to roll it back.
Why not? Those higher taxes tend to be in blue states—a move that hasn’t gone unnoticed by conservatives. And the cap has traditionally disproportionately benefited higher-income taxpayers. But now, lawmakers in those states, including Republicans, claim that it’s hurting the middle class and extending to some not-so-blue states. In a tight election year, that may be enough to move the needle.
The Proposal
Most in Congress appreciate that there isn’t an appetite for a full repeal of the cap. But lawmakers have a new idea: making it marriage-neutral and limiting the benefit for high-income taxpayers.
The proposal would increase the cap from $10,000 to $20,000 for married taxpayers filing joint returns with adjusted gross income of less than $500,000 in 2023 (yes, it’s another retroactive bill). It would only last one year. Beginning in 2024, the cap would revert to $10,000 until it finally expires.
The end date for the cap would not be changed from the 2017 law—it would still expire at the end of 2025. Many lawmakers, including New Jersey’s Joshua S. Gottheimer (D), are hoping to see the cap expire permanently. Gottheimer said, “We’ll be voting on new legislation to raise the SALT cap which will help stop double taxation, and lower taxes for millions of middle-class Jersey residents – for teachers, for nurses, for police and firefighters, for the hard-working men and women of labor. Come 2025, in less than two years, we’re on our way to the entire SALT deduction coming back – and that means lower taxes for hardworking, middle-class Jersey families.”
The bill’s co-sponsors are, to date, all Republicans who hail from traditionally high-tax states: California, Maryland, New Jersey, and New York. Four Republicans in New York nearly sidelined the previous tax bill to expand the child tax credit and restore certain tax breaks for businesses by insisting that the SALT deduction proposal be added to the bill. They eventually gave up and allowed that tax bill to move forward, but only after reportedly securing assurances from House Speaker Mike Johnson (R-La.) that they could revisit the SALT cap after the vote.
The SALT bill has been referred to the House Committee on Ways and Means, where it currently sits. If it passes, it would be retroactive to the 2023 tax year—the filing season for the 2023 tax year opened on Jan. 29, 2024.
