Drake Tax - Schedule A - State and Local Income Tax Deduction Limitation (Wks SALT)
Article #: 15833
Last Updated: October 21, 2024
Note This article comprises former KB articles 11084 and 15833 It is herein referred to as KB 15833.
Under the guidelines from the TCJA, the deduction for state and local income and property taxes is limited to one total combined deduction of $10,000 ($5,000 if Married Filing Separately). This applies to tax years beginning after December 31, 2017 and before January 1, 2026.
Watch the video SALT Limitation for a demonstration.
Any amounts paid in 2022 for a state and local income tax imposed for a tax year beginning January 1, 2023are treated as paid on the last day of the tax year of imposition, therefore, cannot be deducted on the taxpayer’s 2022 federal tax return, with the following exception for real property tax-- a prepayment of anticipated 2023real property tax may be deductible for tax year 2022 if:
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The payment was made in 2022
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The real property tax was assessed before 2023
In Drake Tax 2023, if the cumulative amount entered for real estate taxes, personal property taxes, state and local income taxes, and sales tax exceeds the $10,000 limit ($5,000 if MFS), worksheet Wks SALT is generated to show the total paid vs. the allowed amount for each tax paid. Only the lesser of the total taxes paid or $10,000 ($5,000 if MFS) will flow to Schedule A, line 5e. The worksheet shows how much of each tax is being carried to the Schedule A, line 5e for your records. Since some states may have different allowable amounts, this worksheet is also used to maintain the breakdown of amounts for that purpose.
Caution In some circumstances, the sales tax will be deducted instead of the income taxes because this will usually result in a more beneficial deduction when considering the tax-ability of the refund for next year. As the Wks SALT states in this circumstance:
If state income taxes are deducted on Schedule A, and then a state issues a refund of some or all of those taxes, the refund may have to be reported as income in the following year. The program has chosen to deduct sales tax instead of income tax, even though the income tax is higher, so that no state refunds will be taxable on next year's return. Mark the Force income tax check box on screen A, line 5 to force the income taxes to be deducted instead of the sales taxes, if that results in a benefit to the taxpayer on a state return.
Income
The Wks STAX page in View/Print mode uses the gross income from such sources as the SSA and 1099-R screens, not the taxable income. What the taxpayer had available to spend is relevant to sales tax, rather than the taxable income.
To force the worksheet to print, use the check box on the STAX screen > Print the General Sales Tax Worksheet.
Prior to 2018
Prior to the Tax Cuts and Jobs Act (TCJA), taxpayers were allowed an itemized deduction on the Schedule A for state and local sales tax, as well as foreign taxes,* with an election to deduct state and local general sales tax instead of using local income tax.
Note *Foreign real property tax could not be deducted other than taxes paid or accrued carrying on a trade or business.