State and Local Tax Deductions Limited

For tax years 2018 through 2025, the new Act limits deductions for state and local taxes paid by individual taxpayers to $10,000 in a single year. Prior to 2018, these taxes were fully deductible, except where the alternative minimum tax applied, which was often. Under the new rules, the total deduction for state and local real property taxes, personal property taxes, income taxes, and general sales taxes (if elected instead of income taxes) is limited to $10,000 a year ($5,000 for married filing separately). The $10,000 limit does not apply to taxes paid or accrued in carrying on a trade or business or an investment activity. The new Act expressly provides that any state or local income taxes paid in 2017 for taxes imposed in 2018 or after will be treated as paid in 2018 rather than 2017. This provision does not apply, however, to prepaid property taxes, which may continue to be deducted as long as they represent prepayments for one year or less.