CPA Exam — REG (Regulation)Federal Taxation of IndividualsMedium
A single taxpayer has adjusted gross income (AGI) of $100,000. They paid $5,000 in state income taxes, $3,000 in real estate taxes, and $1,500 in personal property taxes. What is the maximum state and local tax (SALT) deduction the taxpayer can claim in calculating their itemized deductions?
- A$8,000
- B$10,000
- C$0
- D$9,500
Show answer & explanationAnswer & explanation
Correct answer: D. $9,500
The maximum deduction for state and local taxes (SALT) is limited to $10,000 ($5,000 for married filing separately) per household. The taxpayer paid $5,000 (state income) + $3,000 (real estate) + $1,500 (personal property) = $9,500. Since the total paid ($9,500) is less than the $10,000 limit, the taxpayer can claim the full $9,500 as a deduction.
Why the other options are wrong
- A. This option incorrectly omits personal property taxes from the calculation.
- B. This option incorrectly suggests that the maximum deductible is $10,000, even though the taxpayer only paid $9,500. You cannot deduct more than you paid.
- C. This option is incorrect; SALT taxes are deductible up to the limit.
SALT Deduction Limit
The deduction for state and local taxes (SALT), including income, sales, real estate, and personal property taxes, is capped at $10,000 per household ($5,000 for married filing separately).
- Applies to state and local income, sales, real estate, and personal property taxes.
- Maximum deductible amount is $10,000 ($5,000 for MFS).
- This limit was introduced by the Tax Cuts and Jobs Act (TCJA) of 2017.
Memory trick: The SALT cap is like a 'Tax Hat' on your state and local taxes.