By Lauren Young
NEW YORK (Reuters) -Affluent earners who live in states with high property and income taxes may see some relief in President Donald Trump’s tax plan.
The Republican-led U.S. House of Representatives passed a bill on Thursday that would allow a deduction of up to $40,000 on federal returns for state and local taxes, known as SALT. A previous version of the bill had a cap of $30,000.
If passed by the Senate, the new expanded SALT cap would benefit millions of big earners in high-tax states, including New York, New Jersey, Pennsylvania, Maryland, Oregon and California.
Since new tax laws in 2017, the SALT deduction has been capped at $10,000.
Changes could go into effect for the 2025 tax year, so taxpayers who itemize their deductions could reap bigger returns as early as next year.
“If you live in a state with high taxes and make between $200,000 to $500,000, we estimate that it will probably increase after-tax income by nearly 1%,” said Ernie Tedeschi, director of economics at The Budget Lab at Yale, a nonpartisan think tank.
Lisa Lewis, a certified public accountant and tax expert with TurboTax in San Diego, said upper-income earners had been missing the valuable deduction for property and state income.
“Will it move the needle financially? It will help,” she said.
In its current iteration, the SALT cap would increase by 1% per year through 2033, said Mark Baran, a tax attorney and managing director at CBIZ in Washington, DC.
Baran said that many of the people with the most to gain from the SALT deduction live in so-called blue, or Democratic-leaning, states.
For everyone else, he said “the distributional effect is unclear.”
For some residents of high-tax coastal states, this could bring some welcome financial relief.
“But it doesn’t change that fact that truly high earners are making geographic moves due to tax law,” said Eric D. Brotman, a certified financial planner and chief executive officer of BFG Financial Advisors.
The tax bill is likely to be altered as it moves its way through the legislative process and some tax experts told Reuters they expect the Senate to tweak parts of the proposed SALT deductions to bring down the cost.
(Reporting by Lauren Young, Editing by Leela de Kretser and Rosalba O’Brien)
