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Final tax bill restores part of SALT deduction

WASHINGTON — A compromise tax reform bill would modestly expand the number of New Yorkers who could continue to write off some of their state and local taxes on their federal returns, tax experts said Thursday, but Democrats continued to grouse that the state would lose out under the tax legislation because it trims the so-called "SALT" deduction.

In their final version of tax reform legislation, House and Senate negotiators agreed to allow taxpayers to write off up to $10,000 in property taxes, income or sales taxes — or a combination of property and sales or property and income taxes.

For New Yorkers, that's an improvement over the previous versions of the tax bill, which would have only allowed taxpayers to deduct $10,000 in property taxes. But it falls far short of the standard set in the tax code since the income tax was established in 1913, which said taxpayers could deduct every penny they paid in state and local taxes.

Tax experts said the change in the final version of the tax bill would largely benefit higher-income taxpayers who don't own their own home.

"I definitely think it's going to affect a fair number of people in New York," said Steven Elwell, vice president of Level Financial Advisors in Amherst.

Senate tax bill to include partial 'SALT' deduction

Elwell cited several types of taxpayers who could benefit from the change:

  • Young professional couples that make a decent income but who haven't bought a house yet might want to itemize so they can claim up to $10,000 in the SALT deduction.
  • Higher-income retirees who have sold their homes and are now renting apartments in retirement facilities might want to itemize and claim the SALT deduction.
  • Dual-income couples with a healthy income but low property taxes — which could happen if they never traded a starter home for something bigger and better — might want to itemize to claim a SALT deduction.

The change is likely to have a greater impact in the New York City area, where a large number of higher-income people rent rather than own their homes, said E.J. McMahon, founder and research director of the Empire Center for Public Policy, a right-leaning Albany think tank.

"It only means something to higher-income people," McMahon added.

That's because the tax reform proposal would nearly double the standard deduction, to $24,000 for a married couple, meaning far fewer people would need to itemize. Those that continue itemizing would want to do so only if they could combine their SALT deduction with a mortgage interest deduction, charitable deduction and other write-offs that total more than $24,000 — a level that only higher-income taxpayers would reach.

One other change in the latest version of the tax reform bill could ease the burden on higher-income taxpayers that will lose out under the reduced SALT deduction, McMahon noted. That would be the final plan's reduction of the top individual tax rate to 37 percent, down from 39.6 percent under current law.

Even with those changes, local tax experts predicted the tax bill would provide little joy for upper-income New Yorkers compared to their counterparts in other states. That's because the dramatic reduction in the SALT deduction will still clobber wealthy people in high-tax states such as New York.

"For people paying significant taxes, there will be faint praise for this," said Anthony Ogorek, a Williamsville financial planner.

But among Republican members of Congress, there was plenty of praise for the emerging House-Senate compromise tax bill and its expansion of the SALT deduction in comparison with earlier versions of the bill.

"Obviously this is an added step we've been advocating since day one," said Rep. Tom Reed, a Corning Republican who sits on the tax-writing Ways and Means Committee. "When we opened up the door to compromise, we recognized that there are other states where the income tax is significant."

California lawmakers, in particular, have been pressing to include state income taxes in the SALT deduction. But in New York, too, "I think it will affect a significant number of people," Reed said.

Meanwhile, Rep. Chris Collins, a Clarence Republican, labeled the changes in the SALT deduction "a moot point."

"Only 30 percent of my constituents currently itemize their taxes, and most of these families have total itemized deductions lower than what the new doubled standard deduction will be," Collins said. "Families in my district will pay less in taxes because of the new doubled standard deduction, lower rates, and enhanced family tax credits.”

Democrats, however, continued to insist that even the latest change in the SALT deduction would do grave damage to New York.

Both parties agree: Senate tax bill worse for New York than House version

Gov. Andrew M. Cuomo has repeatedly said that slashing the SALT deduction will lead to higher taxes for so many New Yorkers that some will leave the state, thereby increasing the tax burden on those that remain. He pleaded with New York Republicans in Congress to oppose the tax bill.

"Why would you support a plan that has a special provision that is a dagger at the state of New York, your home state?" the governor asked.

Senate Minority Leader Charles E. Schumer, a New York Democrat, has also been fighting to preserve the full SALT deduction.

"Drastically cutting back on SALT and other deductions will be a gut punch to millions of middle class and upper-middle-class Americans who live in the suburbs,” Schumer said.

Rep. Brian Higgins, a Buffalo Democrat who also serves on the Ways and Means Committee, said he fears that the tax bill will create a larger federal deficit that will prompt Republicans to want to cut the SALT deduction even more in the future.

Even with the latest change, "this begins to take away the 100-plus-years protection that people had for deducting their state and local taxes," he noted.

GOP tax plan would cut some rates, but mean radical changes for WNY

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