Before Tax Rerfom changes were effective, individuals were permitted to claim the following types of taxes as itemized deductions, even if they were not business related:
- State, local, and foreign real property taxes;
- State and local personal property taxes; and
- State, local, and foreign income, war profits, and excess profits taxes.
Taxpayers could elect to deduct state and local general sales taxes in lieu of the itemized deduction for state and local income taxes.
New SALT Deduction Limits
For tax years 2018 through 2025, new tax reform laws limit deductions for taxes paid by individual taxpayers in the following ways:
- Tax Reform limits the aggregate deduction for state and local real property taxes; state and local personal property taxes; state and local, and foreign, income, war profits, and excess profits taxes; and general sales taxes (if elected) for any tax year to $10,000 ($5,000 for marrieds filing separately). Important exception: The $10,000 limit doesn’t apply to: (i) foreign income, war profits, excess profits taxes; (ii) state and local, and foreign, real property taxes; and (iii) state and local personal property taxes if those taxes are paid or accrued in carrying on a trade or business or in an activity engaged in for the production of income.
- Tax Reform completely eliminates the deduction for foreign real property taxes unless they are paid or accrued in carrying on a trade or business or in an activity engaged in for profit.
