Don't Mess With Taxes

Sure, income taxes are infuriating, but if you ask homeowners what tax they hate most, it’s a good bet that their annual property tax bill tops the list.

These real estate taxes are issued by county or parish officials across the United States. And the recipients of property taxes are found in all political parties.

That's why a group of Republicans whose congressional districts are full of frustrated suburban homeowners are, right now, standing up against their party's leaders when it comes to the one big beautiful budget and tax bill sought by the White House.

They say they won't vote for the bill unless the state and local tax (SALT) federal tax deduction section is increased even more.

In addition, a national accounting organization is raising concern about the bill’s proposal to end the pass-through entity SALT workaround that’s become popular in many states.

Tax reform limits: The homeowner federal itemized SALT deduction was, before enactment of the TCJA of 2017, unlimited. But that GOP tax reform bill capped the deduction at $10,000 for all taxpayers.

The argument, still being used by supporters of the limit, is that the tax break primarily benefits wealthier taxpayers who own higher priced homes. Since the ultimate tax bill depends in part on the assessed value of the residences, they got more tax benefit when they deducted their higher taxes that did owners of more modest residences.

That is true. But the increase in recent years of home values across the United States has meant more residential homeowners have seen their local real estate taxes rise dramatically. More middle-class homeowners have seen their budgets pinched by the tax hikes, especially when they’ve not received corresponding income increases.

The same tax-related financial worry also is true for older homeowners living on fixed, or in the case of investments, volatile incomes.

Not being able to maximize the property tax increase as a tax deduction at federal filing time has only added to these homeowners' frustration. And they've let their Congressional representatives know.

High cost state concerns: Now, a group of House Republicans, mostly from New York, New Jersey, and California, have gone to war with their party leadership over the tax break.

They say the bump up from $10,000 to $30,000 in the plan approved this week by the tax-writing House Ways and Means Committee is insufficient relief for their tax-weary constituents.

A full House vote on the tax/reconciliation bill may come as early as next week. It's unclear if the GOP leadership will be able to convince their unhappy members to pass it.

Even if they do, the Senate will get its turn at the bill when it is sent to that chamber. Many members there, including some in the Republican party, say they intend to make changes.

Business SALT worries: Individual property owners aren't the only ones unhappy with the proposed changes to the SALT deduction.

Another provision in the new tax bill would limit a SALT deduction workaround for some pass-through businesses that was created in many states after the 2017 tax law change.

The American Institute of CPAs expressed concern that the bill's modification of Sec. 275, which denies deductions for certain taxes, would permanently limit the deduction for the taxpayer’s aggregate of certain “specified taxes” as defined in the bill.

Those specified taxes include “substitute payments,” which are payments made to state or local jurisdictions that entitle the payer to specified tax benefits, notes AICPA in an article published in its Journal of Accountancy.

They also include taxes paid or accrued by a partnership or S corporation in carrying on a qualified trade or business, curtailing the use of passthrough entity taxes (PTETs) to avoid the SALT cap.

AICPA President and CEO Mark Koziel, in a statement issued by his group, called the PTET changes “unfair” to affected businesses.

“While the AICPA remains grateful for the diligent work of the Ways and Means Committee to provide taxpayers and practitioners with commonsense tax policies that will have a continued benefit to the country and on the tax administration process, we remain deeply troubled by the proposed changes to the PTET deduction,” the statement said.

“The changes to this vital deduction are unfair to businesses that are the backbone of the American economy, which include accounting firms, medical offices, and Main Street businesses, of which the majority are structured as passthroughs,” added Koziel.

“It is integral that we have parity amongst all types of entities; the AICPA is committed to ensuring that the guiding principles of good tax policy and the interests of taxpayers and tax practitioners are taken into account during the reconciliation process, as these policies will have a significant impact on both,” Koziel continued.

You also might find these items of interest:

• GOP transportation bill calls for federal EV, hybrid fees
• Trump's FY26 budget seeks 23% cut in domestic programs
• Green energy tax credits, including solar options, on the GOP tax bill chopping block

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