The Tax Cuts and Jobs Act has placed a maximum threshold on taxes that can be deducted on Schedule A – Itemized Deductions.

Prior Law

Through December 31, 2017

Individual taxpayers are allowed an itemized deduction for state, local, and foreign real property taxes; state and local personal property taxes; and state, local, and foreign income, war profits, and excess profits taxes. Taxpayers can elect to itemize for state and local general sales taxes instead of state and local income taxes. The itemized deduction for taxes is for non-business related taxes.

New Law

Effective for tax years beginning after December 31, 2017, and before January 1, 2026

Any foreign real property tax may not be deducted, other than taxes paid or accrued in carrying on a trade or business activity. The aggregate itemized deduction for state and local real property taxes, state and local personal property taxes, state and local income taxes, and general sales taxes (if elected) not paid or accrued in carrying on a trade or business activity for any tax year is limited to $10,000 ($5,000 for married filing separately).

Commentary

The $10,000 aggregate limitation does not apply to taxes paid or accrued in carrying on a trade or business activity. Thus, taxes that are deductible in computing income on an individual’s Schedule C (Business), Schedule E (Rental), or Schedule F (Farm) are allowed.

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Curt Bach
Curt Bach
I joined Hawkins Ash CPAs in August 2010, and am currently a manager in the firm’s Medford office. I provide a variety of tax services, including trust and estate tax preparation and planning. I have more than nine years of experience providing audit and tax services to nonprofit organizations, governmental entities and small businesses. I am a member of our firm’s tax committee and not-for-profit service group.

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