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Lawmakers Seek to Undo Repeal of SALT Deduction

Posted on January 10, 2018 by Stephen K. Cooper

A group of congressional Democrats asked the IRS to allow a 2017 deduction for prepaid property taxes on the same day that two New York lawmakers introduced a bipartisan House bill to restore the state and local tax deduction.

The Tax Cuts and Jobs Act (P.L. 115-97) repealed the SALT deduction but allowed individuals to claim up to $10,000 in state and local property taxes and either income or sales taxes. Several states allowed taxpayers to prepay their 2018 property taxes late last year before the new cap took effect. The IRS, however, advised December 27 that prepaid real property taxes that were not assessed before 2018 are not deductible in 2017.

A group of nine Democrats from high-tax states, including Senate Finance Committee member Robert Menendez, D-N.J., and House Ways and Means Committee member Bill Pascrell Jr., D-N.J., said the IRS misread the legislative text of the new tax law.

“While Section 11042 specifically prohibits 2018 state and local income taxes from being prepaid and deducted from federal income taxes in 2017, it is silent on the prepayment and deduction of local property taxes,” the lawmakers wrote in the January 9 letter to IRS Acting Commissioner David Kautter. “This is nothing but a backdoor attempt to retroactively implement the cap on state and local tax deductions and it is not supported by law. As such, we ask that you rescind the flawed guidance and appropriately treat property tax payments made in 2017 as fully deductible against 2017 federal income tax liability,” the lawmakers said.

Meanwhile, House Appropriations Committee ranking minority member Nita M. Lowey, D-N.Y., and Rep. Peter T. King, R-N.Y., introduced legislation, the Securing Access to Lower Taxes by Ensuring Deductibility Act, January 9 seeking to restore the SALT deduction. The two New Yorkers said 35 percent of residents in their state deduct an average of more than $22,000 every year. 

“By effectively eliminating this deduction, the new federal tax law unfairly punishes families living in states that send more money to the federal government than we get back in federal investments,” the lawmakers said in a statement.

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