What is the tax deduction limit for Norma, a single taxpayer, who paid $11,200 of real estate taxes on her personal residence and $9,500 of state income taxes?
Norma, a single taxpayer, paid $11,200 of real estate taxes on her personal residence and $9,500 of state income taxes. The Tax Cuts and Jobs Act (TCJA) has imposed a $10,000 limit on the combined deduction for state and local taxes (SALT), including both property and income taxes. Therefore, Norma can only deduct $10,000 as an itemized deduction. She cannot deduct $9,500 of state income taxes as a for AGI deduction, nor can she deduct $11,200 of real estate taxes as an itemized deduction. If Norma has no other itemized deductions, whether she should itemize her deductions or not depends on the standard deduction for her filing status. If the standard deduction is greater than $10,000, she should not itemize her deductions.
Tax Deduction Limit for Norma
Explanation:
The correct answer to the question is that Norma can deduct $10,000 of taxes as an itemized deduction. This is because of the SALT deduction limit, which, as of the tax laws that were passed with the Tax Cuts and Jobs Act (TCJA) in 2017, caps the amount of state and local taxes (SALT) that an individual can deduct at $10,000. The SALT deduction includes state and local property as well as income taxes. Therefore, even though Norma paid $11,200 in real estate taxes and $9,500 in state income taxes, she is limited to a maximum deduction of $10,000.
Options b, c, and d are inaccurate because:
- State income taxes are not deductible for AGI (above the line deductions), they can only be itemized.
- If Norma has no other itemized deductions beyond the $10,000 SALT deduction, she would likely be better off taking the standard deduction unless it is less than $10,000.
- Norma cannot deduct the full amount of her real estate taxes paid as an itemized deduction because of the $10,000 SALT cap.