Congress Wants to Eliminate the State and Local Tax Deduction. What’s That?

Congress is beginning to debate major changes to the tax code that could affect your tax return as early as next year.

For now, the nine-page framework that Republicans have released on their plans for tax reform sketches only the broadest outlines of how it will change the tax code. One major part of the plan is to increase the standard deduction while cutting other deductions, including a major one for state and local taxes.

Here’s what you need to know.

What is the state and local tax deduction?

Sometimes called the SALT deduction, it allows filers who choose to itemize their deductions — rather than claiming the standard deduction — to deduct either the amount of state and local real estate, property, sales, or income taxes paid over the course of a year. These deductions (both the standard and itemized) ultimately reduce the amount of income that gets taxed by the government. Filers have been able to deduct state and local taxes since federal income tax was conceived in 1913.

Who benefits from the state and local tax deduction?

According to the Tax Foundation, it is the most popular itemized deduction: of the approximately 44 million American households (about 30%) that itemized their deductions in 2013, about 43 million deducted what they paid in state and local tax. People who itemize tend to be on the higher end of the income scale — about 42% of households with annual incomes between $50,000 and $75,000 itemized their deductions in 2013, while 93.5% of households that made over $200,000 did.

People living in high-income and high-tax parts of the country also tend to benefit…

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