The new U.S. tax code for income taxes has now a new cap on the deduction of state tax + property taxes.

The new U.S. tax code for income taxes has now a new cap on the deduction of state tax + property taxes. Now the deduction is limited to $10,000 maximum a year for all real estate taxes paid + state tax. How do you think this policy is going to affect the housing market in the short and long run in the states that have high state tax and high property tax like New York or California? Use the residential investment model, use the graphs.

Expert Solution

Taxpayers who itemize deductions on their federal income tax returns can deduct state and local real estate and personal property taxes, as well as either income taxes or general sales taxes. The Tax Cuts and Jobs Act limits the total state and local tax deduction to $10,000

The state and local tax (SALT) deduction previously was one of the largest federal tax expenditures, with an estimated revenue cost of $100.9 billion in fiscal year 2017. The estimated revenue cost for fiscal year 2019 dropped to $21.2 billion because the Tax Cuts and Jobs Act (TCJA) significantly increased standard deduction amounts (thereby reducing the number of taxpayers who will itemize deductions) and capped the total SALT deduction at $10,000.

State and local taxes have been deductible since the inception of the federal income tax in 1913. Initially, all state and local taxes not directly tied to a benefit were deductible against federal taxable income. In 1964, deductible taxes were limited to state and local property (real and personal property), income, general sales, and motor fuels taxes

ekkarill92 answered 2 years ago

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