{"id":7166,"date":"2023-04-14T06:18:16","date_gmt":"2023-04-14T06:18:16","guid":{"rendered":"https:\/\/www.irstaxapp.com\/?p=7166"},"modified":"2023-04-14T06:18:23","modified_gmt":"2023-04-14T06:18:23","slug":"state-and-local-tax-deduction-2","status":"publish","type":"post","link":"https:\/\/www.irstaxapp.com\/state-and-local-tax-deduction-2\/","title":{"rendered":"7 Situations State and Local Tax Deduction Not Allowed On Federal Tax!"},"content":{"rendered":"\n<figure class=\"wp-block-image size-large is-resized\"><picture><source srcset=\"https:\/\/www.irstaxapp.com\/wp-content\/uploads\/2023\/04\/state-and-local-tax-deductions-2-1024x576.webp 1024w,https:\/\/www.irstaxapp.com\/wp-content\/uploads\/2023\/04\/state-and-local-tax-deductions-2-300x169.webp 300w,https:\/\/www.irstaxapp.com\/wp-content\/uploads\/2023\/04\/state-and-local-tax-deductions-2-768x432.webp 768w,https:\/\/www.irstaxapp.com\/wp-content\/uploads\/2023\/04\/state-and-local-tax-deductions-2-150x84.webp 150w,https:\/\/www.irstaxapp.com\/wp-content\/uploads\/2023\/04\/state-and-local-tax-deductions-2-750x422.webp 750w,https:\/\/www.irstaxapp.com\/wp-content\/uploads\/2023\/04\/state-and-local-tax-deductions-2-1140x641.webp 1140w,https:\/\/www.irstaxapp.com\/wp-content\/uploads\/2023\/04\/state-and-local-tax-deductions-2.webp 1200w\" sizes=\"(max-width: 1123px) 100vw, 1123px\" type=\"image\/webp\"><img src=\"https:\/\/www.irstaxapp.com\/wp-content\/uploads\/2023\/04\/state-and-local-tax-deductions-2-1024x576.png\" height=\"632\" width=\"1123\" srcset=\"https:\/\/www.irstaxapp.com\/wp-content\/uploads\/2023\/04\/state-and-local-tax-deductions-2-1024x576.png 1024w, https:\/\/www.irstaxapp.com\/wp-content\/uploads\/2023\/04\/state-and-local-tax-deductions-2-300x169.png 300w, https:\/\/www.irstaxapp.com\/wp-content\/uploads\/2023\/04\/state-and-local-tax-deductions-2-768x432.png 768w, https:\/\/www.irstaxapp.com\/wp-content\/uploads\/2023\/04\/state-and-local-tax-deductions-2-150x84.png 150w, https:\/\/www.irstaxapp.com\/wp-content\/uploads\/2023\/04\/state-and-local-tax-deductions-2-750x422.png 750w, https:\/\/www.irstaxapp.com\/wp-content\/uploads\/2023\/04\/state-and-local-tax-deductions-2-1140x641.png 1140w, https:\/\/www.irstaxapp.com\/wp-content\/uploads\/2023\/04\/state-and-local-tax-deductions-2.png 1200w\" sizes=\"(max-width: 1123px) 100vw, 1123px\" class=\"wp-image-7170 sp-no-webp\" alt=\"state and local tax deduction\" decoding=\"async\" loading=\"lazy\"  > <\/picture><figcaption>ate<\/figcaption><\/figure>\n\n\n\n<p>The SALT deduction or State and Local Tax deduction you pay certainly reduces your taxable income when you claim an itemized deduction on the federal tax returns. However, this post informs you of seven specific situations where this deduction is not permitted.\u00a0If you are new to this topic, please read &#8220;<a href=\"https:\/\/www.irstaxapp.com\/state-and-local-tax-deduction\/\">What is SALT deduction?<\/a>&#8220;<\/p>\n\n\n\n<div id=\"ez-toc-container\" class=\"ez-toc-v2_0_62 counter-hierarchy ez-toc-counter ez-toc-grey ez-toc-container-direction\">\n<p class=\"ez-toc-title\">Table of Contents<\/p>\n<label for=\"ez-toc-cssicon-toggle-item-662d887217249\" class=\"ez-toc-cssicon-toggle-label\"><span class=\"\"><span class=\"eztoc-hide\" style=\"display:none;\">Toggle<\/span><span class=\"ez-toc-icon-toggle-span\"><svg style=\"fill: #999;color:#999\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" class=\"list-377408\" width=\"20px\" height=\"20px\" viewBox=\"0 0 24 24\" fill=\"none\"><path d=\"M6 6H4v2h2V6zm14 0H8v2h12V6zM4 11h2v2H4v-2zm16 0H8v2h12v-2zM4 16h2v2H4v-2zm16 0H8v2h12v-2z\" fill=\"currentColor\"><\/path><\/svg><svg style=\"fill: #999;color:#999\" class=\"arrow-unsorted-368013\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" width=\"10px\" height=\"10px\" viewBox=\"0 0 24 24\" version=\"1.2\" baseProfile=\"tiny\"><path d=\"M18.2 9.3l-6.2-6.3-6.2 6.3c-.2.2-.3.4-.3.7s.1.5.3.7c.2.2.4.3.7.3h11c.3 0 .5-.1.7-.3.2-.2.3-.5.3-.7s-.1-.5-.3-.7zM5.8 14.7l6.2 6.3 6.2-6.3c.2-.2.3-.5.3-.7s-.1-.5-.3-.7c-.2-.2-.4-.3-.7-.3h-11c-.3 0-.5.1-.7.3-.2.2-.3.5-.3.7s.1.5.3.7z\"\/><\/svg><\/span><\/span><\/label><input type=\"checkbox\"  id=\"ez-toc-cssicon-toggle-item-662d887217249\"  aria-label=\"Toggle\" \/><nav><ul class='ez-toc-list ez-toc-list-level-1 ' ><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/www.irstaxapp.com\/state-and-local-tax-deduction-2\/#Video_on_State_and_Local_Tax_Deductions_Under_Federal_Law\" title=\"Video on State and Local Tax Deductions Under Federal Law\">Video on State and Local Tax Deductions Under Federal Law<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/www.irstaxapp.com\/state-and-local-tax-deduction-2\/#1_State_and_Local_Tax_Deduction_Limitation_Courtesy_TCJA\" title=\"1. State and Local Tax Deduction Limitation Courtesy TCJA\">1. State and Local Tax Deduction Limitation Courtesy TCJA<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-3\" href=\"https:\/\/www.irstaxapp.com\/state-and-local-tax-deduction-2\/#2_Taxes_Paid_or_Accrued_for_Business_or_Investment_Purposes\" title=\"2. Taxes Paid or Accrued for Business or Investment Purposes\">2. Taxes Paid or Accrued for Business or Investment Purposes<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-4\" href=\"https:\/\/www.irstaxapp.com\/state-and-local-tax-deduction-2\/#3_Taxes_Paid_or_Accrued_in_Connection_with_a_Tax_Shelter\" title=\"3. Taxes Paid or Accrued in Connection with a Tax Shelter\">3. Taxes Paid or Accrued in Connection with a Tax Shelter<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-5\" href=\"https:\/\/www.irstaxapp.com\/state-and-local-tax-deduction-2\/#4_Foreign_Taxes_Paid_or_Accrued\" title=\"4. Foreign Taxes Paid or Accrued\">4. Foreign Taxes Paid or Accrued<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-6\" href=\"https:\/\/www.irstaxapp.com\/state-and-local-tax-deduction-2\/#5_Fines_Penalties_and_Interest_by_State\" title=\"5. Fines, Penalties, and Interest by State\">5. Fines, Penalties, and Interest by State<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-7\" href=\"https:\/\/www.irstaxapp.com\/state-and-local-tax-deduction-2\/#6_Taxes_Paid_on_State-Exempt_Income\" title=\"6. Taxes Paid on State-Exempt Income\">6. Taxes Paid on State-Exempt Income<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-8\" href=\"https:\/\/www.irstaxapp.com\/state-and-local-tax-deduction-2\/#7_State_and_Local_Taxes_Claimed_as_Credits\" title=\"7. State and Local Taxes Claimed as Credits\">7. State and Local Taxes Claimed as Credits<\/a><\/li><\/ul><\/nav><\/div>\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Video_on_State_and_Local_Tax_Deductions_Under_Federal_Law\"><\/span>Video on State and Local Tax Deductions Under Federal Law<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<figure class=\"wp-block-embed is-type-video is-provider-youtube wp-block-embed-youtube wp-embed-aspect-16-9 wp-has-aspect-ratio\"><div class=\"wp-block-embed__wrapper\">\n<div class=\"jeg_video_container jeg_video_content\"><iframe loading=\"lazy\" title=\"7 situation state and local tax deductions not allowed !\" width=\"500\" height=\"281\" src=\"https:\/\/www.youtube.com\/embed\/x2n7v8xSKpU?feature=oembed\" frameborder=\"0\" allow=\"accelerometer; autoplay; clipboard-write; encrypted-media; gyroscope; picture-in-picture; web-share\" allowfullscreen><\/iframe><\/div>\n<\/div><\/figure>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"1_State_and_Local_Tax_Deduction_Limitation_Courtesy_TCJA\"><\/span><strong>1. State and Local Tax Deduction Limitation Courtesy TCJA<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>The Tax Cuts and Jobs Act, or TCJA, set a cap on the SALT deduction. According to\u00a0<a href=\"https:\/\/www.law.cornell.edu\/uscode\/text\/26\/164\" target=\"_blank\" rel=\"noreferrer noopener\">IRC \u00a7164(b)(6)<\/a>, starting from the tax year 2018, the SALT deduction for individual taxpayers is limited to $10,000 ($5,000 for married taxpayers filing separately). This limitation applies to the total of SALT, sales, and property taxes; any taxes paid above this limit are not deductible.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"2_Taxes_Paid_or_Accrued_for_Business_or_Investment_Purposes\"><\/span>2. <strong>Taxes Paid or Accrued for Business or Investment Purposes<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>Certain state and local taxes paid or accrued in carrying on a trade, business, or income-producing activity are not allowed as SALT deductions. Instead, these taxes must be treated as a business expense under&nbsp;<a target=\"_blank\" href=\"https:\/\/www.law.cornell.edu\/uscode\/text\/26\/164\" rel=\"noreferrer noopener\">IRC \u00a7164(a)<\/a>. Such taxes include state income taxes on business income, property taxes on rental properties, and sales taxes on business purchases.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"3_Taxes_Paid_or_Accrued_in_Connection_with_a_Tax_Shelter\"><\/span>3. <strong>Taxes Paid or Accrued in Connection with a Tax Shelter<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>As per\u00a0<a href=\"https:\/\/www.irs.gov\/pub\/irs-drop\/rr-84-135.pdf\" target=\"_blank\" rel=\"noreferrer noopener\">Revenue Ruling 84-135<\/a>, state and local taxes paid or accrued in connection with a tax shelter are not allowed as a SALT deduction.\u00a0<\/p>\n\n\n\n<p class=\"has-black-color has-text-color has-background\" style=\"background-color:#d1eafa\"><em>A tax shelter is a financial arrangement or investment strategy that aims to reduce or minimize taxpayers&#8217; taxable income and tax liability. Tax shelters can be legal or illegal, depending on whether they follow the tax regulations set forth by the Internal Revenue Service (IRS) and other tax authorities.<\/em><\/p>\n\n\n\n<p>Instead, these taxes are treated as a tax shelter expense and are subject to the limitations and restrictions applicable to tax shelter investments.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"4_Foreign_Taxes_Paid_or_Accrued\"><\/span>4. <strong>Foreign Taxes Paid or Accrued<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>The SALT deduction does not apply to foreign taxes paid or accrued. According to\u00a0<a href=\"https:\/\/www.law.cornell.edu\/uscode\/text\/26\/164\" target=\"_blank\" rel=\"noreferrer noopener\">IRC \u00a7164(a)(3)<\/a>, foreign taxes are excluded from the deductible state and local tax list. Instead, taxpayers may be eligible for a foreign tax credit or deduction under IRC \u00a7901 or \u00a7164(a)(3) for certain taxes paid or accrued on their <a href=\"https:\/\/www.irstaxapp.com\/foreign-earned-income-exclusion\/\">foreign income<\/a>.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"5_Fines_Penalties_and_Interest_by_State\"><\/span>5. <strong>Fines, Penalties, and Interest by State<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>State and local taxes in the form of fines, penalties, or interest are not deductible as SALT. In\u00a0<a href=\"https:\/\/www.irs.gov\/pub\/irs-drop\/rr-79-410.pdf\" target=\"_blank\" rel=\"noreferrer noopener\">Revenue Ruling 79-410<\/a>, the IRS clarified that any amount paid as a fine or penalty to a governmental authority due to the violation of a law is not allowed as a <strong>SALT deduction<\/strong>. Additionally, interest payments on tax underpayments or late charges are not deductible.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"6_Taxes_Paid_on_State-Exempt_Income\"><\/span>6. <strong>Taxes Paid on State-Exempt Income<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>If a taxpayer receives income exempt from federal income tax, any state or local taxes paid on that exempt income are disallowed as a SALT deduction. As per\u00a0<a href=\"https:\/\/www.law.cornell.edu\/uscode\/text\/26\/265\" target=\"_blank\" rel=\"noreferrer noopener\">IRC \u00a7265(a)(1)<\/a>, no deduction is allowed for any expenses, including taxes, that are allocable to tax-exempt income.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"7_State_and_Local_Taxes_Claimed_as_Credits\"><\/span>7. <strong>State and Local Taxes Claimed as Credits<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>If a taxpayer claims a state or local <a href=\"https:\/\/www.irstaxapp.com\/childcare-tax-credit\/\">tax credit <\/a>for taxes paid, the amount of the credit may reduce the allowable SALT deduction. In\u00a0<a href=\"https:\/\/www.irs.gov\/pub\/irs-drop\/rr-11-26.pdf\" target=\"_blank\" rel=\"noreferrer noopener\">Revenue Ruling 2011-26<\/a>, the IRS clarified that if a taxpayer claims a <a href=\"https:\/\/www.irstaxapp.com\/refundable-tax-credits-2022-2023\/\">state tax credit<\/a> for taxes paid to another state, the taxpayer must reduce their SALT deduction by the amount of the credit.<\/p>\n\n\n\n<p>Understanding the situations where SALT deductions are disallowed while computing federal taxes is essential to ensure accurate tax filings. By knowing these regulations, taxpayers can avoid potential tax errors and possible penalties associated with noncompliance.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>The SALT deduction or State and Local Tax deduction you pay certainly reduces your taxable income when you claim an itemized deduction on the federal tax returns. However, this post informs you of seven specific situations where this deduction is not permitted.\u00a0If you are new to this topic, please read &#8220;What is SALT deduction?&#8220; Video [&hellip;]<\/p>\n","protected":false},"author":1,"featured_media":7170,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":[],"categories":[54],"tags":[],"amp_enabled":false,"_links":{"self":[{"href":"https:\/\/www.irstaxapp.com\/wp-json\/wp\/v2\/posts\/7166"}],"collection":[{"href":"https:\/\/www.irstaxapp.com\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.irstaxapp.com\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.irstaxapp.com\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.irstaxapp.com\/wp-json\/wp\/v2\/comments?post=7166"}],"version-history":[{"count":2,"href":"https:\/\/www.irstaxapp.com\/wp-json\/wp\/v2\/posts\/7166\/revisions"}],"predecessor-version":[{"id":7171,"href":"https:\/\/www.irstaxapp.com\/wp-json\/wp\/v2\/posts\/7166\/revisions\/7171"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.irstaxapp.com\/wp-json\/wp\/v2\/media\/7170"}],"wp:attachment":[{"href":"https:\/\/www.irstaxapp.com\/wp-json\/wp\/v2\/media?parent=7166"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.irstaxapp.com\/wp-json\/wp\/v2\/categories?post=7166"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.irstaxapp.com\/wp-json\/wp\/v2\/tags?post=7166"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}