The Tax Cut and Jobs Act Just Gave Residential Taxpayers One More Reason to Scrutinize Their Propert
Before the Tax Cut and Jobs Act, homeowners did not bear the complete burden of overpaying their property taxes because it was shared with the federal government. When I use the term “overpaying property taxes”, I am referring to paying taxes on assessments that are higher than they should be and should be challenged through an appeal because they result in a homeowner paying more than their fair share of taxes. It is true that the homeowner actually paid the local tax bill, but part of the pain of overpaying local property taxes was lessened by the fact that the homeowner could deduct the state and local taxes they paid on their federal income tax returns. Consequently, part of the burden of overpaying property taxes shifted to the federal treasury by receiving less income tax than they would if the homeowner’s property was correctly assessed.
Then Congress passed, and President Trump signed, the Tax Cuts and Jobs Act in 2017. Two key changes in the Act eliminated the shifting of the burden of local property taxes to the federal government. One key change is the limit on the deduction of state and local taxes (SALT deduction) to $10,000. In high property tax states such as New Hampshire, where this blogger resides, it is fairly common for homeowners to pay more than $10,000 in property taxes alone, particularly if they own more than one home. With the limit of the SALT deduction the tax benefit of overpaying property taxes was lessened because any amounts in property taxes over $10,000 would no longer be deductible from federal income taxes for those taxpayers who itemize their deductions.
Secondly, and perhaps more importantly, another key change is the nearly doubling of the standard deduction to $12,000 for single taxpayers, $18,000 for heads of households, and $24,000 for married couples filing joint returns. This will significantly reduce the number of taxpayers who will itemize their deductions. If taxpayers do not itemize their deductions, then they will not be able to take the SALT deduction. If they do not take the SALT deduction, the burden of overpaying property taxes will not be shifted to the federal government.
Whether a particular taxpayer pays more or less in taxes under the Tax Cuts and Jobs Act will depend on his or her particular circumstances. However, what the Tax Cuts and Jobs Act does is make it more important for taxpayers to analyze and pay attention to their property taxes to see if they are properly assessed. Homeowners alone now bear the burden of overpaying property taxes.
By: John F. Hayes, Esq., General Counsel/Senior Tax Representative to Allobar Strategies and former general counsel to the New Hampshire Department of Revenue Administration