The state and local tax deduction (colloquially known as the SALT Deduction) has come into focus in recent years following the Tax Cuts and Jobs Act, but understanding what this deduction is, and who benefits from it can be complicated. 

What is the State And Local Tax Deduction? 

The SALT deduction is the deduction that those who itemize their tax deductions on their federal tax returns each year benefit from. It is a deduction from the taxpayer’s adjusted gross income for the year, for taxes that were paid at the state (such as state income taxes) and local (such as county property taxes or city taxes) level. The main concept behind this deduction is that one should not have to pay federal income tax on money that went to pay other taxes (essentially avoiding a tax on tax). 

Prior to the Tax Cuts and Jobs Act passing in 2018, those who itemize their deductions could take the full amounts paid in state and local taxes as a deduction on their federal tax returns (ignoring AMT for now). However, after the passing of the Tax Cuts and Jobs Act, this tax deduction was capped at $10,000 per tax return, per year.  For those in states with high income taxes, high property taxes, or both (such as New York or California) capping the SALT deduction at $10,000 per year caused taxpayer’s adjusted gross income to increase and therefore their taxes to increase as well. 

The SALT deduction has come back into focus in recent years as both a political football and as states try to plan and find ways to allow their residents to benefit in some way on their federal tax return and to help reduce the tax burden that came with capping the deduction at $10,000 per year. 

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