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unlimited SALT deductions are back

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  • #16
    the TCJA was actually dead in the House initially because not enough Republican congressmen from blue states would back a bill that killed SALT. But then, Tom MacArthur, a Republican from central New Jersey (so his constituents were impacted) came up with the compromise to limit the SALT deduction to $10k. That compromise was enough to get other blue state Republican congressmen to get on board and it passed the house. MacArthur lost his bid for re-election in his Republican-leaning district in 2018

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    • #17
      Originally posted by xraygoggles View Post

      Exactly. All the blue states make up the majority of tax revenue given to the federal govt. So in essence, most red states are moochers from the federal tax pool.

      It makes sense that states that have high taxpayers be allowed to get some discount on their federal taxes. The only reason SALT was capped was that they needed to find a way to pay for that horrible TCJA, and Trump wanted to screw over blue states that didn't vote for him. So this is one of the things they did to be able to pass the law.
      Hmmm, I live in MD, which is both blue and high tax so I’d like to agree with you but I don’t think your argument is well founded. People in blue states pay high federal taxes because they have high earnings subject to federal taxes. They pay high state income taxes because their state governments tax them heavily (although the net burden is not much different when property and sales taxes are included) to provide services. The two are unrelated. Logically there should be no federal tax deduction for state and local taxes in our federal system. Even if the tax systems preserves a deductibility for SALT, it is still a distortion for federal taxpayers to subsidize the high government spending of blue state government. If blue state leaders want a lower burden on their citizens they should reduce spending and taxes.

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      • #18
        Originally posted by Gamma Knives View Post

        Connecticut, Louisiana, Maryland, New Jersey, Oklahoma, Rhode Island and Wisconsin are the states that currently allow. Wanted to point that out before all the California folks get too excited.
        Sigh, yeah, I read about this last week and briefly got excited. Hoping California passes this soon.

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        • #19
          Originally posted by Larry Ragman View Post

          Hmmm, I live in MD, which is both blue and high tax so I’d like to agree with you but I don’t think your argument is well founded. People in blue states pay high federal taxes because they have high earnings subject to federal taxes. They pay high state income taxes because their state governments tax them heavily (although the net burden is not much different when property and sales taxes are included) to provide services. The two are unrelated. Logically there should be no federal tax deduction for state and local taxes in our federal system. Even if the tax systems preserves a deductibility for SALT, it is still a distortion for federal taxpayers to subsidize the high government spending of blue state government. If blue state leaders want a lower burden on their citizens they should reduce spending and taxes.
          Oh, I'm not saying it's a good thing for most people; it's not. It disproportionately helps the top income brackets, that's true.

          However, your statement "it is still a distortion for federal taxpayers to subsidize the high government spending of blue state government" is kinda arbitrary, isn't it? Can't I make a similar argument about taxpayers (especially those that don't own a house, are unmarried, and with no kids, like me) subsidizing anyone that has a house (via mortgage interest ded.), anyone that has kids (child tax credit), anyone that is married (lower tax brackets), etc.

          I suppose one can make the claim that these aforementioned tax breaks are incentives by the govt to do certain things which will help stabilize society as a whole (get married, have kids and buy a house). A similar argument could be made for SALT deduction for wealthy blue states: stay in this high-tax but dynamic environment and you (and ur biz) will get a tax break. It's just how you look at it.

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          • #20
            Perhaps, but you should not conflate a state government’s spending and hence the state residents’ state tax burden with all of our federal tax burden. The state spends and taxes for reasons of it own. Its residents stay for many reasons as well, but presumably they are willing to pay the taxes to cover state cost. While the federal government has provided a subsidy in the form of a tax break in the past there is no rationale for them to continue to do so, especially in massive deficit, and there is absolutely no reason why a blue state resident should be subsidized to a greater extent than a red state resident. The SALT limitation is a fair compromise, whether or not it is to your benefit or mine.

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            • #21
              I wonder if the cap on SALT is going to make more docs move out of high income tax states. I myself living in NJ considered moving despite loving my job b/c of the SALT cap. Although it seems most docs are like me and won't pull the trigger if they like where they are now, and new graduating docs are so financially illiterate like I was that they will not take into account taxes in their job hunt of where to locate.

              But then again maybe not- maybe WCI is making a difference where new grads are going to avoid NJ/Cali/NY, etc- interesting how it plays out if SALT continues to be capped.

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              • #22
                Originally posted by xraygoggles View Post

                Oh, I'm not saying it's a good thing for most people; it's not. It disproportionately helps the top income brackets, that's true.

                However, your statement "it is still a distortion for federal taxpayers to subsidize the high government spending of blue state government" is kinda arbitrary, isn't it? Can't I make a similar argument about taxpayers (especially those that don't own a house, are unmarried, and with no kids, like me) subsidizing anyone that has a house (via mortgage interest ded.), anyone that has kids (child tax credit), anyone that is married (lower tax brackets), etc.

                I suppose one can make the claim that these aforementioned tax breaks are incentives by the govt to do certain things which will help stabilize society as a whole (get married, have kids and buy a house). A similar argument could be made for SALT deduction for wealthy blue states: stay in this high-tax but dynamic environment and you (and ur biz) will get a tax break. It's just how you look at it.
                Is it federal tax policy to encourage states to tax heavily? Is that the goal? That would seem to benefit if in fact the burden was shifted. Not the argument being made. Your argument was tax policy on individual behavior, not state tax policies. Just an observation.

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                • #23
                  I am a bit confused about the implementation of this.

                  The IRS notice says this applies to SALT payments made after 11/9/20. So for tax year 2020, I believe payments would have to be made before 12/31/20. So, for instance, say you withhold 50,000 income for NJ state income tax in 2020, would that be considered a payment between 11/9/20 & 12/31/20?

                  Also, if you have an S-corp with partners who reside in two states with state tax reciprocity (such as PA and NJ), do all partners have to agree to want to take this potential deduction? Or could some chose to take it and other not choose to do it? It seems like it would affect the K1 income, so would likely have to have agreement of majority of partners.

                  Finally, the issuance suggests that payments from 12/31/17 to before 11/9/20 might also be able to be counted/claimed as a credit? Am I reading is part of the notice wrong?

                  Attached is the actual IRS notice.

                  What situations would an S-corp with partners who are paying >10K in state income & local property taxes not want to claim this credit?

                  Attached Files

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                  • #24
                    Originally posted by Shant View Post
                    I never quite understood the ideological underpinnings of the SALT deduction anyway. You get to receive the services your state taxes pay for, and get the same federal services that everyone pays for. But why should you then get help from the rest of the country to pay for the state services by deducting it from your federal taxes? It seems unfair to me that people getting less services are expected to subsidize the people getting more services.
                    I think your assumption that people who live in higher tax areas receive higher state services is faulty. You are assuming governments are efficient.

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                    • #25
                      Originally posted by VentAlarm View Post

                      I think your assumption that people who live in higher tax areas receive higher state services is faulty. You are assuming governments are efficient.
                      Especially those who pay the higher tax.

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                      • #26
                        Originally posted by VentAlarm View Post

                        I think your assumption that people who live in higher tax areas receive higher state services is faulty. You are assuming governments are efficient.
                        Actually, one might consider that this is actually a state level wealth redistribution of some type. Probably not to the "socially disadvantaged". Absolutely no basis, simply a possibility.

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                        • #27
                          Originally posted by VentAlarm View Post

                          I think your assumption that people who live in higher tax areas receive higher state services is faulty. You are assuming governments are efficient.
                          It's too broad a statement to make this conclusion I agree. Some states are run better than others. There are high tax states that are clearly run terribly. There are also low tax states that are also run terribly. There are also high tax states where most of the citizens of the state think the state government is run very well, just as there are low tax states where the citizens of the state think it's run well. Really varies a lot which is why it's hard to make a blanket statement either way

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                          • #28
                            Not to cause an outcry, I have never heard someone have the opinion a state government is run well.
                            Sometimes government is needed because it actually takes a law and overhead, but it comes with built in inefficiencies. Always room for improvement but politics require compromise.

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                            • #29
                              Originally posted by Tim View Post
                              Not to cause an outcry, I have never heard someone have the opinion a state government is run well.
                              Sometimes government is needed because it actually takes a law and overhead, but it comes with built in inefficiencies. Always room for improvement but politics require compromise.
                              Sure. But the statement that people receiving fewer services are subsidizing those receiving more services is entirely opposite. Maybe on a state level that might approximate some sort of coherency, but our government is set up to do the exact opposite of that (I.e. subsidize services for those who put in less on the backs of those that put in more). But, as above, even on the state level the statement is flawed because it assumes efficiency.

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                              • #30
                                I don't see how it assumes efficiency. The people in the state or municipality are the ones getting the services however inefficiently they are provided. I don't think there's any argument that it would be more fair for people living in other jurisdictions to subsidize the non-provision of services through the SALT deduction.

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