This article was last updated on December 28
Under the new Trump/GOP tax reform bill for 2018 the deduction for Sate and Local taxes (SALT) related to property and sales taxes, on federal IRS tax returns is being limited to $10,000. Tax payers will still need to itemize for this deduction, but will have a cap of $10,000 versus today where there is no limit.
The original plan was to eliminate this tax deduction entirely but faced with stiff resistance from GOP members in high tax states like California and New York, the $10,000 deduction allowance limit was instead put in place. Various calculations have shown that high income earners who live in high tax areas like Manhattan, San Francisco, and Seattle will likely take a hit on their tax bill for this area if their state and local taxes exceed $35,000.
IRS update on 2018 property taxes. The IRS formally responded to a common question for many tax payers looking to pre-pay their 2018 property taxes in 2017, so that they can claim the full deduction before the new GOP tax laws that limit this deduction come into effect. The IRS announced that the deduction for their 2018 property taxes may only be deductible only if assessed and paid in 2017. Only the amount assessed by local governments can be claimed and and any pre-payments of potential or anticipated property taxes will not be deductible.
Most tax payers who current claim the SALT deduction may instead choose not to take this itemized deduction at all and instead take the much higher (nearly doubled from current levels) standard deductions in place with the new tax reforms.