Taxpayers will be able to deduct a limited amount of state and local income or sales taxes on their federal returns as part of the deal between Senate and House Republicans to finalize a major tax overhaul, Rep. Kevin Brady, R-Texas, said Thursday.
Those deductions will be capped at $10,000, a big change from current law. But the new decision to make them available for income and sales taxes is an expansion of the break from earlier versions of the bill in the House and Senate, which would have allowed them for only property taxes.
“Fill it up, the way your family wants to fill it up,” Brady said of the $10,000 cap. Brady is the chairman of the conference committee responsible for resolving differences between the two chambers’ bills.
Enlarging the deduction could prove key to retaining support for the final bill from Republicans in high-tax states like New York, New Jersey, and California.
Under current law, taxpayers can deduct property and income or sales taxes paid at the state and local level from their federal taxable income. Brady confirmed Thursday that the same policy would apply in the final GOP bill, but with the $10,000 limitation.
The change could help some taxpayers who would have been at the margin of getting tax breaks or tax hikes under previous versions of the GOP bills.
Relatively few people would be affected, because the GOP plan also calls for doubling the standard deduction. As a result, many fewer people will itemize deductions at all, making the availability of the state and local deduction a non-factor for most.
But for some upper-middle class people itemizing a lot of deductions in states like Oregon, which has high income sales taxes but relatively low property taxes, the allowance for some deductibility of income taxes could ensure that they receive tax breaks rather than increases.