The ‘SALT’ Free Margarita

By now, the US Senate is rolling out its version of a tax bill.  No one is sure how this is all going to play out but you need to be told anyway:  Some in the Congress want to take some important deductions away; one for state and local taxes, and another for mortgage interest and for property taxes.  This is big, folks.

State and local tax (SALT) deduction:  Under some of these proposals, individuals who elect to itemize deductions would no longer be able to deduct state and local income taxes, and personal or real property taxes.  These are currently on the chopping block.  Long seen as a sacred cow – in fact, state and local income taxes have been deductible since the income tax was first enacted, they are sacred no longer.  The more income a taxpayer has, the more important and worthy this deduction is.  This one is fraught with political danger as it affects some constituents (and thus Members of Congress) in different ways.  States with higher taxes such as California, New York, New Jersey, Illinois and Texas claim the vast majority of the SALT deduction.  The Tax Foundation reports that California alone accounts for almost 20% of the total.

The other sacred cow that is near the chopping block:  The deduction for mortgage interest.  Whoa.  One plan calls for denial of the ‘second home’ deduction; another caps the total amount deductible; another denies deduction for home equity loan interest; and yet another version drastically reduces the amount for new loans.

Deny deny deny.  I suppose that’s a perverse way to simplify one’s tax bill.  The true effects of the mortgage deduction change—in whatever way it ends up—may be substantial.  Many people factor in their tax benefit when acquiring a new home or second home. The mortgage interest deduction is often a huge part of the total income tax deductions for individuals, especially in states where high value homes abound.  The change may also affect existing values, if new purchasers will afford less home due to increased home ownership costs.  Even if you don’t care about the deduction on the front end (because you are “paid for”) you may wish to consider how much cash a prospective buyer may have due to what changes are proposed.

The tax bill may be like a New York City shell game, what’s underneath is moved to another shell but yours.  After all, someone has to pay the bills and it may have to be you and me.  Just a little more, perhaps.

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Orlando Gotay
Orlando Gotay is a California licensed tax attorney (with a Master of Laws in Taxation) admitted to practice before the IRS, the U.S. Tax Court and other taxing agencies.
His love of things Mexican has led him to devote part of his practice to the tax matters of U.S. expats in Mexico. He can be reached at, online radio at