It’s no secret that the SALT tax, that $10,000 cap on state and local deductions on your federal tax return, hurt high-end real estate. Agent upon agent have told me that owners of homes valued at more than $1 million took a look at their tax returns this year and said, what happened?
What happened was a $10,000 cap imposed on state and local tax deductions (SALT), one of the changes to the tax code imposed by President Donald Trump’s 2017 tax reform. In Texas, that’s property taxes on a home of about $700,000 value.
On Thursday, the U.S. House of Representatives narrowly passed a temporary two-year repeal of the $10,000 cap.
Inman News reports the bill passed by a slim margin of 218 to 206, mostly along party lines, but don’t get too excited: the bill will likely die in the Republican-controlled Senate.
President Trump has also said he would veto the bill, according to the New York Times. The feeling in Washington is that this was truly a tax break for wealthier Americans, even when crafted by Republicans!
While support of the repeal came mostly from Democrats, not all supported the bill as it was written, with some saying it would disproportionately favor more affluent Americans. The progressive-leaning think tank Center on Budget and Policy Priorities published a study on the bill on Dec. 10 and came to the same conclusion.
“By itself, repealing the SALT cap would overwhelmingly benefit high-income households, since most low- and middle-income taxpayers don’t face the SALT cap,” the study reads. “In addition, paying for repeal by raising the top rate would use up a source of progressive revenue that would no longer be available to fund other, more critical priorities.”
According to Inman, Republicans added in an amendment that would keep the cap for the very rich, taxpayers earning more than $100 million per year. Those funds would go to a tax break for blue-collar workers, like teachers and police. The Democrats raised the top tax rate, from 37 percent to 39.6 percent, to offset the overall revenue loss from repeal.
And the the real estate community (particularly in California) was thrilled, knowing how the cap on deductions has hurt both taxpayers and the industry:
“We are pleased that the House has passed a bill to temporarily eliminate the cap on the amount of state and local tax that taxpayers can deduct on their federal tax returns,” California Association of Realtors President Jeanne Radsick said in a statement. “The combined hit of a reduction in the mortgage interest deduction and current $10,000 SALT cap in the tax law has disproportionately hurt taxpayers and real estate in California.”
