Every year US taxpayers go extra miles just to be able to save some money on their tax bill during tax season. However, the new tax reform backed by the President and the Republicans is all set to change the US tax structure.
According to the new tax law, taxpayers can deduct only up to $10,000 on their 1040s form for state and local tax payments. Although the new tax reform became officially effective in 2018 and will expire in 2025, it has not gone well with the New York state officials as well as citizens. When it comes to itemizing deductions, New York leads with $36,000 – the highest in the United States. The provisions of the new tax reform include:
- The deduction ceiling for state and local taxes will remain only up to $10,000 in property taxes.
- Reducing the amount of the mortgage-interest deduction for new mortgages – while the House bill will allow homeowners to claim up to $500,000 on mortgage interest for a first-home mortgage, the Senate ceiling remains at $1 million. However, on both bills, there would be no deduction on home-equity loans.
- Increasing the standard deduction amount to $12,000 for single individuals and $24,000 for married couples. Personal and dependent exemption of $4,050 (each) no longer stands.
- Compensating the revenue loss with automatic deductions for Medicare and all programs designed to help the elderly and the poor.
- Deductions for charitable contributions, student loans, and retirement savings stays.
- Elimination of alimony deductions.
In the light of this fact, MaryEllen Odell, Putnam County Executive and also the President of NYSAC, stated that while it is true that the US tax structure needed to be altered, the decision to limit the state and local tax and mortgage-interest deductions would be “a hard hit” for New York.
Unhappy with the new federal tax reform, New York state came up with an alternative solution to this issue – taxpayers could donate their due tax amount to charitable foundations under local government, as well as those under school districts and counties in the state, instead of paying their local taxes directly. In return for their donations, taxpayers would be given a credit for up to 95% of the donation amount that they could later claim as a deduction on their federal tax return. And local governments or counties or school districts would determine the amount of donation that would certify for a tax credit for the taxpayers.
Though this was a wise alternative proposed by the New York state authorities, the IRS rejected the proposal by saying that it’s an “effort to circumvent” the federal law of the nation. It also declared that the right to determine the tenets of deductible charitable contribution is under the sole discretion of the federal government and not the local authorities. The new tax reform has raised concerns in Putnam County of New York as well. The IRS maintains that the residents of Putnam county itemize deductions more than any other county in New York state, that is almost 51%. Following it is Dutchess county with 41%.
As of now, nothing concrete has been decided as to what the citizens should do about their tax deductions. Neal Sullivan, chairman of the Legislature’s Rules Committee, states:
“This is a really complex issue. The amount of work, on the county side, and the town side, required to put some of these ideas into place would be significant. Nonetheless, if the IRS says we can do it, then we have to explore it.”
So, for now, the best course for the citizens of the US would be to opt for a measured approach and tread with caution, since the federal ruling, no matter what, will be the last call for the taxpayers.