New Limit on Deducting State, Local Taxes

BY STEVE DINNEN

It’s like rubbing SALT into a wound.

Bad pun aside, in this case SALT stands for State and Local Income Taxes. We all pay them, and because of the new federal tax law that limits the deductibility of such taxes, higher-earning Iowans may see their federal tax bills rise.

Iowa has a relatively high marginal tax rate – 8.98 percent (fourth-highest in the nation, says the Federation of Tax Administrators). Iowans who itemize expenses on their federal tax forms can deduct state income taxes they have paid, along with local property taxes.

The rub comes because the new tax law caps the deduction for these taxes at $10,000.

Let’s add it up.

Say you own a home in Des Moines assessed at $550,000. You’ll pay an estimated $9,840 in property taxes. And say you show a taxable income of $110,000. You’ll owe Iowa income taxes of $7,995.

The total of those two is $17,835. On your federal tax return for 2017 you can deduct that entire amount. But not so for 2018 and beyond; the limit is $10,000.

The more you earn, and the higher the value of your home, the wider this gap becomes. Ouch.