32 THE QUEENS COURIER • JULY 5, 2018 FOR BREAKING NEWS VISIT WWW.QNS.COM
Axed or Pared Back Tax Breaks
BY JOHN SAVIGNANO, CPA
The new tax law may have lowered
rates. But it also axed or pared back
many breaks. Case in point…state and
local tax deductions.
The write-off is now capped at
$10,000. In the past, the SALT deduction
was generally unlimited for individuals,
except for people who owed
the AMT. Under the new law, filers
can deduct on Schedule A any combination
of state and local property
taxes, and income or sales taxes,
up to a total $10,000 limit. Married
couples who file separate federal tax
returns can’t deduct $10,000 apiece.
Each takes up to $5,000.
Property and sales taxes remain fully
deductible for individuals in a business
or for-profit activity, so taxes paid
on rental realty can be taken in full on
schedule E, without regard to the cap.
Ditto for such taxes paid by farmers
and the self-employed.
Changes to the SALT deduction
caused chaos soon after the law was
enacted. Many homeowners rushed
out in Dec. 2017 to prepay their 2018
real property taxes, thinking they
could deduct them on 2017 returns
while the write-off was unlimited.
Local governments revised computer
systems to accept tax prepayments
in 2017 for the 2018-19 years. But IRS
acted quickly to rein this in, saying in
a news release that property tax prepayments
are deductible only if the tax
was assessed in 2017.
People living in high-tax blue states
will be hit hardest by the new SALT
rules. Among the most affected states:
Calif., Conn., Md., N.J., N.Y. and Ore.
A few states have already passed laws
to blunt the impact of the $10,000 cap.
N.Y. was the first to enact legislation in
April, with N.J. and Conn. follow soon
after. The aim is to convert nondeductible
taxes into deductible charitable
gifts. For example, under the N.Y. law,
New Yorkers will be given the option
to contribute to a state-operated charitable
fund in exchange for a credit,
equal to 85% of their gift, that can
be used against their N.Y. state individual
income tax liability. The statute
also authorizes local governments to
create charitable funds to accept contributions
in exchange for a property
tax credit of up to 95% of the taxpayer’s
donation.
Not surprisingly, IRS is eager to
clamp down on these state workarounds,
which House Ways and
Means Chairman Kevin Brady (R-TX)
refers to as gimmicks and Treasury
Secretary Steven Mnuchin calls ridiculous.
The agency said publicly that
it will issue regs on the federal tax
treatment of contributions to the state
funds. Experts anticipate that IRS
will treat the amounts as state and
local tax payments and not as deductible
charitable contributions. But the
Service has to be careful here. Many
states have laws in which residents can
donate to state scholarship programs
and get credits to offset state taxes in
part. IRS has previously blessed such
a law. Look for the issue to end up in
court. Officials in N.Y., N.J. and other
states have vested lots of time and
money and won’t take IRS’s expected
guidance lying down. The N.J. attorney
general says he’ll file a lawsuit if
the Service bars the deduction.
John Savignano is a partner with
Savignano Accountants & Advisors
located at 47-46 Vernon Blvd., Second
Floor, in Long Island City. If you have
any questions or require additional
information, please call John at 718-
707-0955.
TAX TIPS
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Astoria, NY 11103
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Co-Author of the
best selling book
“Breaking the Tax Code”
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Salvatore P. Candela, EA, ATA, ABA
Enrolled Agent - Tax Advisor
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