State and Local Tax (SALT) tax deduction cap explained

Homeowners who itemize deductions on their federal income tax returns have been able to deduct, without limit, New York State and NYC real estate taxes for decades.

With changes to the tax code, enacted in the 2017 Tax Cuts and Jobs Act, deductions were capped at $10,000 starting on January 1, 2018. This change can make the cost of owning real estate substantially higher.

Why the SALT deduction is important for New Yorkers

In New York City, property taxes are determined by multiplying the applicable tax rate by the assessed value. With real estate values at some of the highest in the country, the SALT deduction was previously seen as a source of relief to homeowners with high tax bills.

Tax Class

Property Tax Rates
for 2019/2020

Properties Included

Class 1

21.167%

One-, two-, and three-
family homes,
condo buildings under
3 stories

Class 2 | 12.473% | condos and coops

Where incomes are concerned, New Yorkers are in need of relief, too. Not surprisingly New York City houses some of the wealthiest residents in the nation who pay high state and city taxes on their earnings. They have also tended to average the highest SALT deductions. According to the Tax Foundation, people with incomes over $100,000 receive more than 88 percent of SALT deduction benefits.

According to IRS data, residents of Manhattan, took the highest average deduction in the US.

Top Ten Counties for State and Local Deduction

County, State | SALT Deduction Per Filer
New York County, NY | $ 25,627
Marin County, CA | $ 19,334
San Mateo County, CA | $ 16,779
Westchester County, NY | $ 15,678
Santa Clara County, CA | $ 14,969
Fairfield County, CT | $ 14,575
San Francisco County, CA | $ 13,925
Nassau County, NY | $ 12,414
Morris County, NJ | $ 12,286
Somerset County, NJ | $ 11,773

Source: https://taxfoundation.org/state-and-local-tax-deduction-by-county-2016/

Ways the SALT deduction cap can be offset for high earners

As incomes rise, the loss in deductions can also be offset by the decrease of the top federal income tax rate (from 39.6% to 37%), the doubling of the estate tax deduction and the cutting of the capital gains rate from 23.8% to 21%.