How do you order SALT deductions? I want to max out property tax and use the balance as state income taxes paid.

[TaxMonkey · Accepted solution]

There is no official guidance on this, and likely won't be until next - if then. 

[Accountant-Man]

I live in NJ, so the income taxes paid are only for the payments to the return; however, the RE taxes are a deduction up to $15,000 on the NJ return.

If the state income tax is $10,000, and the RE tax is at least $15,000, then on the federal return I only get $10,000. If I check the box to deduct sales tax instead of state income tax I get the same federal result, not counting NIIT.

The sales tax on Sch A is irrelevant, and the RE tax goes to the NJ return. And none of the NJ refund is taxable in 2019.

[The-Tax-Lady]

Subtract the SALT from the total RE Tax paid and the result is your maxed out RE tax. 

Skip the SALT, use the sales tax option, if the RE tax is close to 10,000. 

[KeithinSanDimas]

I've got $10,000 in state income taxes paid and $6,000 in property taxes paid.  How do I apportion it to $6,000 in property tax paid and $4,000 in state income tax paid? How do I know it's not just using the $10,000 in state income tax paid and ignoring the property taxes?

[Accountant-Man]

You don't.

[TaxGuyBill]

There is no need to 'order' them.

[KeithinSanDimas]

I admire your confidence.  From Spidell: "The TCJA does not provide any form of ordering rules for the $10,000 deduction. You will have to apply this manually in your tax software."

[TaxGuyBill]

§111(a):  Gross income does not include income attributable to the recovery during the taxable year of any amount deducted in any prior taxable year to the extent such amount did not reduce the amount of tax imposed by this chapter.
https://www.law.cornell.edu/uscode/text/26/111

There is no way on the forms to indicate an "order".  Look at it this way:  Take away all of the State income taxes.  How much did it reduce income to save tax?  That is the amount subject to 'recovery' next year.

[rbynaker]

I agree, there's no impact on the federal return.  But there may be an impact on the state return depending on how your state handles the add-back.  But that splits this one thread into 40+ scenarios. 🙂

[TaxMonkey]

The Federal impacts occur in relation to the NIIT - where state income tax paid is an offset to net investment income.

[rbynaker]

Oh, NIIT.  Didn't realize that's what we were talking about.  I think the regs say "any reasonable method".  So make one up. 🙂

[TaxMonkey]

Its a tangential subject 😃