Tax Law Changes
We still don’t know what final tax legislation will look like. One change that is being considered is an adjustment to the State and Local Tax (SALT) deduction limit which will impact many people with higher property and state taxes. This will reverse the tax limitation that was put in place in 2017. A recent CNBC article listed how this might work.
“For 2021, the standard deductions are $12,550 for single filers or $25,100 for married couples filing together, meaning they won’t itemize if write-offs — including SALT, medical expenses, charitable gifts, mortgage interest and more — fall below those thresholds.
And since the Tax Cuts and Jobs Act of 2017, filers who itemize deductions can’t claim more than $10,000 for SALT, increasing levies for filers with high state income and property taxes.
However, the House Democrats’ plan temporarily increases the limit to $80,000, allowing eligible filers to further reduce taxable income.
“This would certainly cause more people to itemize again in high-income-tax states,” said Benson, explaining how most filers don’t currently exceed the standard deduction.
But the savings from the increased limit depends on how much it reduces someone’s taxable income.
“I think the simplest way to explain [the savings] is roughly your marginal rate times the difference in taxable income,” said Evan Beach, a CFP and director of wealth advisory at Campbell Wealth Management in Alexandria, Virginia.
For example, if the higher SALT deduction reduces taxable income by $10,000 and the marginal tax rate is 22%, there will be $2,200 in savings”
We are carefully watching tax legislation. We will reach out as needed based on the final legislation that will passed by the Senate and signed into law.
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