How A 2018 Tax Rule Can Impact You At Home
How A New Tax Rule Can Impact You At Home
It use to be that you could deduct all and any property or income tax you paid to the city and state you live in. The advantage was you were able to claim a tax deduction and lower the amount of money you owe on your federal taxes. With year 2018 tax laws in place there are now limits on how much state and local taxes you can deduct - ultimately this may increase your federal tax bill costing you more money
sales and property taxes can be federally deductible up to a limit of $10,000 in total starting in 2018
This mostly will affect those living in high income tax states such as California or areas where property taxes are high
A simplified example: TJ makes $100,000 in a year. TJ lives in a state with 9% income tax and and also owns a home paying property taxes of $500 a month - in 2017 TJ would have been able to deduct $9000 (from state income tax paid) and another $6,000 (from property taxes paid) from his/her federal income tax bill. A total of $15,000.
With the new law in place TJ can only deduct $10,000 of that
How did this affect TJ?
100,000 - 15,000 = 85,000 is TJ taxable federal income
100,000 - 10,000 = 90,000 is TJ taxable federal income
Would you rather pay taxes on $85,000 or $90,000?
Fortunately for most - the "standard deduction" has also been increased to a whopping $24,000 for married couples and $12,000 for single tax filers. Meaning - most people will not need the deduction anyway (as most people do not live in high tax states either)
Things to consider:
- This law stays in effect until 2025
- If you live in a high tax state this may adversely affect you
- Think twice before buying a home in a high property tax area
Other Articles You May Enjoy:
Dollar Cost Averaging With Robinhood
Credit Card Stigma