Author Topic: SALT Deduction  (Read 421 times)

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Offline DrTravel

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SALT Deduction
« on: September 26, 2018, 05:23:32 PM »
Well I just received my property tax bill today :-[

Remember the good old days when we could deduct all of our SALT but now it's limited to $10K. Here's the question I'm pondering...we used to deduct the state income taxes (plus all the other taxes) paid in one year but in the following year we had to declare our state income tax refund as income. So now my property tax bill will exceed $10K by itself...pretty much like everyone who owns a home on this forum. It makes no sense to include my state income taxes in my deduction calculation because I don't need it to exceed $10K. I wonder, do I need to include it? Will TurboTax automatically include it - or give me an option to choose which taxes I want to include in my $10K? The reason I ask is because If I don't declare this deduction, then I don't have to declare the state income tax refund as income. Seems like a double whammy to be forced to declare the useless deduction but then be required to declare the refund as income.

Inquiring minds want to know. I'm sure there are numerous experts on this forum who know the answers!
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Offline Soylent Green Is People

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Re: SALT Deduction
« Reply #1 on: September 26, 2018, 05:46:17 PM »
Not a CPA, nor do I play one on TV, but just finished reading this:

http://www.mortgagenewsdaily.com/09262018_property_taxes.asp

Which made me think any advice given today is going to change quite a bit over the next 120 days.

My .02c

SGIP 

Offline Perspective

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Re: SALT Deduction
« Reply #2 on: September 26, 2018, 07:28:16 PM »
Did you pay AMT in 2017? Is your financial situation pretty similar in 2018? If your income supports a ~$1M mortgage, you have to be in the AMT; and if you are, you haven't been fully deducting property taxes and CA income taxes anyway.

Deductions are always voluntary.

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Offline qwerty

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Re: SALT Deduction
« Reply #3 on: September 26, 2018, 11:45:39 PM »
@ DRtravel - I hope you really are a doctor and don’t work in finance :-)

Prior to the tax law change that capped the SALT deduction, if on your federal return you deducted 30,000 in state income taxes paid, then filed your California tax return and got a refund of 5,000 from california, which means you ended up paying 25,000 in taxes for that particular tax year.  In the subsequent tax year when you received the 5,000 back from CA, the IRS is just recapturing the taxes you should have paid in the prior year because your deduction should have been 25,000 vs 30,000. So you essentially got an interest free loan from the IRS.

Now under the new tax law, since they cap your SALT taxes at 10k, the same situation would apply as in prior years to the extent you paid less than 10k in state taxes but deducted 10k (or deducted 8k but ended up paying 6k, etc). Even if you enter in TurboTax that you paid say, 20k in SaLt taxes for 2018, it will cap it at 10k. So as long as you paid more than 10k in SaLT taxes related to 2018 the IRS won’t tax your 2018 California refund received in 2019. In the past, Your refund was only deemed “income” because you over-deducted in the prior year.  Now as long as you pay 10k in salt taxes you are not overdeducting.

Hopefully that makes sense.

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Offline DrTravel

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Re: SALT Deduction
« Reply #4 on: September 27, 2018, 09:48:02 AM »
No AMT, don't work in finance and not a medical doctor.

I think I just will not list state income taxes on Schedule A as they will not be needed to reach $10K. Just hoping that TurboTax will allow me to - you know the program automatically fills in stuff from other forms so once I enter the W-2 stuff it will populate the state income tax on Schedule A.
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