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Congress Shuts Down Prepayment of 2018 State Income Taxes

H.R. 1, known as the Tax Cuts and Jobs Act, which both houses of Congress passed on Dec. 20 starting for 2018 capped the State and local taxes deduction (affectionately known as SALT) : for individuals to deduct up to $10,000 ($5,000 for married taxpayers filing separately).  The big question is will 2018 State and local income taxes be deductible in 2017, the answer is NO!  Well now we see that Congress actually had wording within the tax bill specifically presenting this…

December 18, 2017

You can put your check books away because among the more-gratuitous provisions of the Tax Bill (H.R. 1, known as the Tax Cuts and Jobs Act,), Congress buried the following lump of coal:

 

SEC. 11042. LIMITATION ON DEDUCTION FOR STATE AND LOCAL, ETC. TAXES.

(a) IN GENERAL.—Subsection (b) of section 164 is amended by adding at the end the following new paragraph:

‘‘(6) LIMITATION ON INDIVIDUAL DEDUCTIONS FOR TAXABLE YEARS 2018 THROUGH 2025.—In the case of an individual and a taxable year beginning after December 31, 2017, and before January 1, 2026—

‘‘(A) foreign real property taxes shall not be taken into account under subsection (a)(1), and

‘‘(B) the aggregate amount of taxes taken into account under paragraphs (1), (2), and (3) of subsection (a) and paragraph (5) of this subsection for any taxable year shall not exceed $10,000 ($5,000 in the case of a married individual filing a separate return).

The preceding sentence shall not apply to any foreign taxes described in subsection (a)(3) or to any taxes described in paragraph (1) and (2) of subsection (a) which are paid or accrued in carrying on a trade or business or an activity described in section 212. For purposes of subparagraph (B), an amount paid in a taxable year beginning before January 1, 2018, with respect to a State or local income tax imposed for a taxable year beginning after December 31, 2017, shall be treated as paid on the last day of the taxable year for which such tax is so imposed.’’

(b) EFFECTIVE DATE.—The amendment made by this section shall apply to taxable years beginning after December 31, 2016.

 

So, there will be no federal income tax deduction for 2018 state estimated income tax payments made in 2017. The legislative language refers only to “income taxes”, but some media outlets are reporting that Treasury has issued guidance prohibiting the deductibility of state and local property tax pre-payments too.

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