President Donald Trump and his cabinet are expected to head to the drawing board and rewrite the country’s tax laws, or extend the tenets in his 2017 Tax Cuts and Jobs Act before they expire at the end of 2025.
But many Americans are left to wonder what will happen with their state and local taxes (SALT) — specifically, how much they will be allowed to deduct.
Trump’s 2017 tax revamp capped the SALT deduction at $10,000, a figure he has since promised to scrap. But Bloomberg reported that some Americans have been freely deducting their SALT all along as some states have established a loophole.
Connecticut, California, New Jersey and New York are among the 30-plus states where certain types of business owners are allowed to deduct their SALT, saving them billions of dollars in total. But other taxpayers are still stuck with the $10,000 cap.
The current cap directly impacts homeowners, especially in those high-tax states. For one, if higher SALT deductions were restored, homeownership would likely become more attractive in high-tax areas and potentially drive up home prices. But higher deductions would also mean an increase in buyer confidence.
Bloomberg reported that only business owners can exploit the workaround in certain circumstances. Corporations already deduct unlimited SALT under different rules.
With much of the first 100 days of Trump’s presidency focused on cutting government spending, Republicans in Congress are considering banning the workaround to raise money. Extending Trump’s tax cuts could add trillions to the national debt, per the Committee for a Responsible Federal Budget (CRBB).
Politico reported last month that Trump supports an increase in the cap and instructed House Republicans to find a “fair number” on SALT. But changes to SALT — even by lifting the cap to $15,000 for single people and $30,000 for married couples — would result in lost revenue of $530 billion over 10 years, the CRFB estimates.
One of the most common objections to raising the SALT cap above $10,000 is that the “benefits of a higher cap would mostly accrue to wealthier Americans,” CNBC reported.
While the SALT cap mostly affects wealthier, Democratic-leaning states, Republicans fear losing support from business owners. If no decision is made by the end of the year, many of Trump’s 2017 tax cuts will expire and unlimited SALT deductions will return in 2026.
