Salty About SALT? What to Know About Your Deduction

By Suzette Blackwell, Global Law PLLC

The next time you’re out dining at your favorite RTC restaurant, don’t be surprised if you find the conversation gravitate toward SALT — but it won’t be the seasoning. Many Reston-area residents just lost a major tax break, as the new tax law passed by Congress caps state and local tax (SALT) deduction at $10,000 on individual tax returns. Here’s a brief summary of how you may be affected by this change in the tax code.

Previously, these state and local taxes were fully deductible on 1040, Schedule A:

1. State and local real and foreign property taxes
2. State and local personal property taxes
3. State, local and foreign income (or sales) taxes

Under the new law, state and local tax deductions will be limited to certain situations. These changes will be in effect temporarily from January 1, 2018 until January 1, 2026 unless Congress makes them permanent:

1. State, local and foreign property taxes and state and local sales taxes are fully deductible only when paid in connection with a trade or business. These taxes may be claimed as a business expense on Schedule C (for example real estate and sales taxes to generate business income), rental property expense on Schedule E (for example, real estate taxes on rental property that qualifies as a business asset) or farm expense on Schedule F.
2. Itemized personal deduction of up to $10,000 for combined: 1) state and local property taxes not paid in connection with trade or business; and 2) state and local income (or sales) taxes. Note that foreign real property taxes may no longer be claimed under this deduction.

Roughly 60 percent of Reston residents are listed as homeowners according to the U.S. Census Bureau. These people would be allowed to claim the itemized personal deduction on Schedule A. In Reston, your home would have to be worth $1 million or more for your property taxes to be above $10,000.

Your property tax assessment can be found by entering your street address here on the Fairfax County government website to obtain the tax district number (be sure to leave off the street suffix – i.e, Road, Street, etc.) You can also find more information about the tax rates applicable to your property’s tax district here.

For some homeowners, the doubling of the standard deduction will offset the lower SALT deduction. For those with higher income, however, the standard deduction may be lower than the previous SALT deduction.

Global Law PLLC represents taxpayers locally, nationally and internationally. If you need assistance with a tax law issue, please visit www.mygloballaw.com, contact our office at (703) 712-8000 or email Suzette at [email protected], or to schedule a consultation.