The Tax Cuts and Jobs Act (TCJA) enacted in 2017 had significant changes to itemized deductions and standardized deductions. There is now a $10,000 limit on state and local taxes. Types of state and local taxes include: real estate taxes, state income tax withheld from a W-2, SDI withheld on a W-2 and state estimated income tax payments.
If you pay more than $10,000 a year in state and local taxes, any deductions over this amount are now lost. You may no longer take this as a deduction.
Unsure whether or not you can itemize? Traditionally, when preparing your taxes you have a choice whether to itemize or take the standard deduction. Normally we take the larger of the two. Now with the tax law changes in 2017 it has changed itemized deductions and the standard deduction dramatically. The standard deduction has doubled and personal exemptions have been taken away.
This may sound like terrible news but in some cases it can benefit taxpayers who have very little in itemized deductions. The other change was to itemized deductions. Now this has severely impacted many taxpayers. Especially those with unreimbursed employee expenses and other itemized deductions; but more importantly those taxpayers who paid a lot of withholding and real estate taxes will now have a cap on how much they can deduct.
Prior to 2018 state and local tax deductions were virtually unlimited. With the new tax law changes state and local tax deductions are now capped at $10,000! This means that if you have real estate taxes and state income tax withheld that is more than $10,000, you cannot take a deduction for anything over the $10,000 – it’s lost!!!
If this scenario applies to you, give Anthony W. Imbimbo a call and he will develop a strategy so that you can plan accordingly without any surprises.
Anthony W. Imbimbo, CPA is a tax expert with over 35 years’ experience. Call him today at 619-497-1040.