State and Local Taxes

The state and local tax deduction has gone through some changes over the years. Prior to 2018, you could deduct an unlimited amount of state and local taxes from your federal income; there was no cap. However, the Tax Cuts and Jobs Act (TCJA) passed in 2017, changed this. Tax filings for 2018 – 2024, you can only deduct up to $10,000 ($5,000 if married filing separately) in state and local taxes when you itemize your deductions.

On July 4, 2025, President Trump signed into law the “One Big Beautiful Bill Act,” passed by Congress, which raises the state and local tax cap to $40,000, effective for the 2025 tax year through 2029. There are limitations. For taxpayers with an adjusted gross income (AGI) of $500,000 or higher, the cap remains at $10,000. After 2029, the cap is set to revert to the original $10,000 for all taxpayers.

State and Local Tax Deduction

To claim the sales tax deduction, you must itemize your deductions on Schedule A of Form 1040. You cannot claim it if you take the standard deduction. Read more about the Itemizing vs the Standard Deduction, here.

For the state and local tax deduction you can report taxes for general sales, real estate, personal property and foreign taxes. However, you cannot deduct both general sales tax and income taxes. When deducting general sales tax, you can use your actual expenses or the sales tax tables.

You can also deduct state and local taxes for:

• Any estimated taxes you paid during the year
• Any prior year’s state or local income tax you paid during the year
• Real property levied for the general public welfare
• Personal property taxes on the value of personal property such as a boat or car

For additional information from the IRS, click here.

This entry was posted on Wednesday, November 18th, 2020 at 6:37 pm and is filed under Deductions. You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed.