House Blocks Bill to Boost State and Local Tax Deduction

On a procedural vote of 195-227, the House on Feb. 14 rejected legislation that would temporarily double the state and local tax (SALT) deduction limit for married couples. NAHB strongly supported the SALT Marriage Penalty Elimination Act.

The SALT Marriage Penalty Elimination Act would have raised for tax year 2023 the cap on the SALT deduction for married taxpayers filing joint returns and earning less than $500,000 a year from the current $10,000 limit to $20,000 for the current tax year. This would have allowed eligible taxpayers who are filing their 2023 tax returns now to immediately claim the expanded benefit.

The SALT deduction allows itemizing taxpayers to deduct taxes paid to state and local governments — including property taxes — from their federal tax return. Beginning in 2018, itemizing taxpayers were limited to a maximum $10,000 deduction for all state and local tax deductions. The $10,000 cap was not indexed for inflation, and is identical for singles and couples, which imposes a sizeable marriage penalty.

Considering that home size, price and property taxes tend to increase with family size, the current SALT deduction limits can be viewed as penalizing families who are already struggling with high housing costs and rising inflation.

Under the principle that taxes paid to state and local governments should not be double-taxed as income by the federal government, NAHB supports eliminating the SALT deduction cap entirely. With the failure of this procedural vote, it’s unlikely any further legislation to modify the SALT deduction cap will be considered this year.

Under current law, the $10,000 deduction limit expires after 2025, alongside many other tax provisions that were enacted as part of the 2017 tax reform bill. This deadline will force Congress to re-evaluate those 2017 tax changes next year, including the limit on SALT deductions.