SALT Deduction Limit

For the 2023 taxes taxpayers will file in 2024, the state and local income tax deduction has seen a significant improvement. The Build Back Better Act, which includes many changes to the US tax code starting from the end of 2023, has been passed by the House of Representatives. 

The changes that come with this bill are to help taxpayers amidst COVID-19 and high inflation. Needless to say, the state and local tax deduction is an excellent example that it will help middle and upper middle-class families in the United States that live in states with a high-income tax rate.

New limits for SALT tax write off

Starting in 2023 through 2030, the SALT deduction limit is increased to $80,000. This significantly increases the boundary that put a cap on the SALT deduction at $10,000 with the Tax Cuts and Jobs Act of 2017.

Though there is a controversy behind this change as the average SALT tax paid isn’t even one-tenth of the limit, it favors millionaires a lot more than the regular Joe. Considering the average state income tax paid is a lot less than even the previous limit, this change won’t help many taxpayers but those at the top of the tax brackets.

Filing status differences in SALT deduction

The filing status of the taxpayers also matters. Unless you’re married filing a separate return, you get the $80,000 limit. Those who are married but filing separately get half of this deduction, limited to $40,000. 

Sales taxes and state taxes paid

State income taxes and sales taxes go pretty much the same place – to the state department of revenue, but you have to pick either one when it involves the deduction. So, you can only write off the state and local taxes paid other than sales tax or claim only the sales tax on your federal income tax return. It’s a lot like choosing between the standard deduction and itemized deductions. 

Claiming the SALT deduction

To claim the state and local tax deduction, you need to itemize your deductions. If you take the standard deduction on your federal income tax return, you can’t write off the state and local taxes paid. The most you are able to claim the SALT deduction for state and local income taxes paid is $80,000, but the sales tax doesn’t have a limit. You can deduct as much sales tax you paid off of your gross income.