• COOPER, MOSS, RESNICK, KLEIN & Co
    Certified Public Accountants
    15165 Ventura Boulevard, Suite 330
    Sherman Oaks, CA 91403
  • Phone: (818) 728-9868
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TCJA Series: $10,000 Limit on State and Local Taxes

Dear Client:

Next in our series about changes from the Tax Cuts and Jobs Act (TCJA): There are new limits placed on individual itemized deductions for various kinds of non-business taxes, beginning January 1, 2018.

Before the changes were effective, individuals were permitted to claim the following types of taxes as itemized deductions:

  • state, local, and foreign real property taxes;
  • state and local personal property taxes; and
  • state, local, and foreign income taxes.

Taxpayers could elect to deduct state and local general sales taxes in lieu of the itemized deduction for state and local income taxes.

Tax deduction cuts. For tax years 2018 through 2025, TCJA limits deductions for taxes paid by individual taxpayers in the following ways:

  • It limits the aggregate deduction for state and local real property taxes; state and local personal property taxes; state and local, and foreign, income, war profits, and excess profits taxes; and general sales taxes (if elected) for any tax year to $10,000 ($5,000 for marrieds filing separately). Important exception: The $10,000 limit doesn’t apply if any of those taxes are paid or accrued in carrying on a trade or business or in an activity engaged in for the production of income.
  • It completely eliminates the deduction for foreign real property taxes unless they are paid or accrued in carrying on a trade or business or in an activity engaged in for profit.

The TCJA treats any amount paid in 2017 for a state or local income tax imposed for a tax year beginning in 2018 as paid on the last day of the 2018 tax year. So an individual may not claim an itemized deduction in 2017 on a pre-payment of income tax for a future tax year in order to avoid the $10,000 aggregate limitation.

Please call us if you would like to discuss how these or any of the many other changes in the TCJA could affect your particular tax situation, and the planning steps you might consider in response to them.

Stay tuned for an upcoming newsletter about the new pass-through income deduction.

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