House bill increases, then temporarily repeals SALT deduction cap
TAX ALERT |
On Dec. 19, 2019, the House voted 218 to 206 to pass the Restoring Tax Fairness for States and Localities Act (Act) (H.R. 5377). If passed in the Senate and signed by President Trump, this Act would retroactively increase the deduction cap for 2019 as well as temporarily repeal the individual state and local tax deduction limitation for 2020 and 2021. The state and location tax deduction cap, enacted as part of the Tax Cuts and Jobs Act or (TCJA), limits the amount of state and local income tax deduction in taxable years beginning after Dec. 31, 2017 and before Jan. 1, 2026.
This legislation calls for an increase to the limited federal state and local tax (SALT) deduction from $10,000 to $20,000 for married couples filing jointly for the 2019 calendar tax year with the $5,000 SALT deduction cap for married couples filing separately unchanged. For tax years 2020 and 2021, the House bill eliminates the limit on the SALT deduction altogether. Following 2021, the limit on the SALT deduction would apply for taxable years through 2025 barring any future legislation.
In order to recoup the loss of revenue to the Federal government, the Act, should it advance, would increase the top marginal individual income tax rate from 37% to 39.6%, and make the following changes:
- Decrease the top taxable income bracket from $600,000 to $479,000 for married individuals filing joint returns and surviving spouses;
- Decrease the top taxable income bracket from $500,000 to $452,400 for heads of households;
- Decrease the top taxable income bracket from $500,000 to $425,800 for unmarried individuals other than surviving spouses and heads of households; and
- Decrease the top taxable income bracket from $300,000 to $239,500 for married individuals filing separate returns.
At this time, it is unlikely the bill will advance. Senate Republicans and President Trump have expressed they will not support the bill.