According to a report from the Government Finance Officers Association (GFOA), in 2014, Maryland had the highest rate of taxpayers that benefited from the SALT deductions, with 45% of tax units using the SALT deduction. The average SALT deduction in 2014 for Maryland was $5,604.
One of the big changes in the Tax Cuts and Jobs Act (TCJA), which took effect in 2018, was to cap deduction on state and local taxes. Many individuals and married couples who only deal with tax filing once a year were shocked to find that where they typically get a refund on their taxes, instead they owed thousands in unpaid taxes to the federal government.
A number of states pushed back against the SALT caps, arguing they unfairly targeted people in states with higher income tax or higher property tax. Democrats have included a SALT cap rollback in the latest stimulus bill proposals. Lifting SALT caps could be a great form of tax relief for people in Maryland and other high cost-of-living states.
What Are SALT Deductions?
State and local taxes (SALT) are paid by a taxpayer at the local level. Property tax and state income tax are generally the highest state and local taxes that taxpayers have to think about. Before 2018, a taxpayer could deduct their local tax payments to reduce their federal tax payments. The idea behind the deduction is that a taxpayer has already paid the local taxes and they should not be subject to additional taxation at the federal level.
The tax reforms that went into effect for tax year 2018 put a $10,000 cap on SALT deductions for single filers and married filing jointly. The SALT caps most severely affected taxpayers in places like New York, New Jersey, Connecticut, and California, who already have high property values and state income taxes.
SALT Deduction Cap Rollbacks
House Democrats have included plans to reinstate the SALT deductions and get rid of the cap in the latest stimulus bill. The proposal would reinstate the SALT deductions for tax years 2020 and 2021.
How a SALT Deduction Cap May Affect Your Taxes?
The more you pay in property taxes, state income tax, and other local taxes, the more likely you are to be impacted by the SALT cap.
The average property tax rate in Maryland is about 1.10%, depending on the county. However, Maryland has a much higher than average property value than other states, meaning homeowners pay more than the average American in property tax.
According to one real estate website, the median sale price of a home in Howard County was $460,000. At Howard County's tax rate of 1.014%, a home assessed at the median sale price would end up with an annual tax bill of $4,664.
According to an average state property tax rate by WalletHub, neighboring West Virginia has a median property tax of $678, Delaware has a median property tax of $1,377, and Virginia averaged $2,155. The median property tax for Maryland state-wide was enough to put it in the top 10 highest in the country, at $3,344.
For homeowners and taxpayers in Maryland, rolling back the SALT deduction may allow them to reduce their federal income tax liability.
Did the SALT Cap Result in an Unpaid Tax Bill or Penalties?
Many taxpayers in Maryland were surprised by how much the SALT deduction cap increased their federal tax bill. Especially for filers who file for an extension and were hit with a high tax-bill in October, the underpayment could have left an unpaid tax bill, underpayment penalties, and interest. If you are facing an unpaid tax bill, contact a reliable Maryland tax attorney for help.
If you have any questions about available deductions, unpaid tax penalties, or any other tax issues, contact an experienced Maryland tax attorney. Contact Gabaie & Associates, LLC for a free consultation on your state or federal tax issue at (410) 862-2198.