The year 2025 is absolutely positively without a doubt, even if things change or they don’t change, going to be an upheaval year when it comes to tax. Here’s the reason. The Tax Cut & Jobs Act that was passed in 2017 expires at the end of this year. So if no action is taken, then it goes back to the way it was. So there’s a big change. If action is taken, who knows what might happen. Today we’re going to talk about one aspect of what will change some way, probably at the end of this year. It’s called the SALT deduction, the state and local taxes, and how you’re able to deduct those on your income tax. It’s going to change, so pay attention!

Now, what did the Tax Cut & Jobs Act do to the SALT deduction? Well, it limited it before 2017. Anything you paid for state and local income tax, you could just deduct whether it was on your house or your income tax or whatever. You could deduct it from your federal income tax bill. Along came that Tax Cut & Jobs Act and that limited that deduction to $10,000. In Mississippi, no problem, Alabama? No problem, but you put yourself in states like in California, New York, and other heavily taxed states, there were some big problems and some big deductions. Why did the Government do that? They did that so that maybe they could get more and more and more people to file a simple income tax return and not itemize deductions. By cutting what you could deduct for the state and local tax, (that’s the SALT deduction), by cutting that to a $10,000 cap, millions of people who previously had itemized their deductions and filled out those long 1040 forms stopped itemizing deductions. It streamlined a lot of things with the IRS, but it cut a lot of deductions and caused a lot more tax to be paid.

So, what do we know right now? We know that at the end of this year, in just a few months, at the end of 2025, that law expires. If Congress does not act, all the laws go back to the way it was before, with unlimited deductions. If Congress does act, who knows what they might do? Let’s explore some of the possibilities.

The first thing Congress could do is they could modify or change it. Now, many have come in from these higher taxed states like California, New York, New Jersey, Washington, Oregon, and they’ve come in and they’ve said, well, let’s double it or let’s triple it, and one even proposal says, let’s make that up to $100,000.

Again, SALT, state and local tax. So up to $10,000 now, but some are saying, let’s go $20,000, let’s go $30,000, let’s go $50,000. I feel like an auctioneer. 😊 Let’s just keep going. So who knows what they might settle on and who knows if they can agree on anything if they do modify the actual deduction. So changing that number from $10,000 is one possibility.

The second possibility, what if they can’t agree on anything and we get down to the end of the year of 2025, it expires, it’s over, it’s done with, so it goes back to what it was before where any tax that you pay state and local tax, (SALT), you can deduct it all. That would be what would happen if they don’t act at all. We could go back to where we were and you could have just any deduction that you wanted that you paid state and local tax.

It could come off of your federal income tax. Let me add a little addendum to it. If it expires, great, we can deduct whatever, but remember, our personal deductions will cut back in half, so we’re going to lose something. If they go back, they’ve doubled the standard deduction. That’s to try to keep people from itemizing everything and they’ve lowered what you can take off for the state and local tax, but if it expires, and it goes back to the way it was, yay! We can deduct everything on taxes, but our standard deductions will reduce drastically back to where they were before. The other plan is, and they’re talking about doing this with the brackets that were changed in 2017 with that Tax Cuts and Jobs Act, they’re saying, let’s just make the act that we put together in 2017 that was to expire on December 31^st, 2025, the law and just make it permanent. Let’s just leave it at $10,000 forever as the maximum you can deduct on state and local.

Well, again, the states that have a low-income tax base, who cares? But the states like California, where we live and other places that have a real high taxable rate on everything that we do here, that’s not too good for us if they leave it the way it is for perpetually into the future.

Now, what if they change it? What if they move it? What if they modify it? What if it expires? Here’s what you need to be ready to do. If you find out that the state and local deduction is going to be $10,000 in 2025, which it is, but it’s going to expire and it’s going to be whatever you want to deduct in 2026, you might want to postpone paying your property tax from 2025 into 2026.

You know how we get those bills sometimes, if it’s not just a standard onto your home loan, you get those bills and it says this is owed by February 1st. A lot of people get that bill in December, and they write that check for it in December, and it comes off of the current year’s income tax (2025). If there’s a $10,000 cap on what you can deduct at the end of this year in 2025, then you might want to postpone that to January 2nd, January 3rd, 2026. If there’s no deduction limit on what you can deduct in 2026, then you’re going to be ready to make some changes in the way you’re doing things. You’re going to challenge the way you’ve always done it for the last nine years because you could be putting yourself at a real distinct advantage from a deduction standpoint if they do change the law, and there’s ways to beat it.

This year, more importantly than any other year I’ve ever known over the last 30 years in this business, it’s important that you keep your ear to the ground, and you listen for tax changes because they are going to be coming at the end of 2025. This salt deduction is just one illustration. This is just one illustration of how staying up to date with your advisor, with your CPA, wherever you get your tax advice can help you out. That’s why we give tax advice at Mosley Wealth Management. This is a year where paying something now versus paying something next year when it comes to tax could make a big difference in the ultimate total value of what you have to pay in the way of taxes.

Hey, I hope this was helpful. If you want to see more about how we help our clients, check out our website, www.mosleywealthmanagement.com. That’s M-O-S-L-E-Y wealth management.com. And if you want more information about what we’ve talked about today, check out more videos on our YouTube channel for more in-depth videos and tips on how you can ease into retirement.