Tag: California SALT deduction

Our analysis of the $80k SALT deduction increase in the House BBB bill

We’ve had four years to mentally recover from building our analysis of the tax effects of the Tax Cuts and Jobs Act (TCJA) on a family in California. That post and the (extremely free and educational) downloadable spreadsheet highlight the power of spreadsheets and problem solving: we can figure out exactly what the tax change would be on a family in California.

Rather than guessing and hand-waving at the net effects of the bracket changes, AMT changes, and State and Local Tax (SALT) deduction changes, we showed that taxes would go up on California families earning over $700k.

So here we are again, with the House passing a version of the Build Back Better legislation, which includes an increase in the SALT deduction limit from $10k to $80k. Senator Sanders calls this a “tax break for the rich”.

We updated our spreadsheet with a third series of columns calculating federal taxes for our hypothetical California family (owns home worth 4x income, 3% mortgage, 1% property tax, 1.5% charity, etc. – you can change your assumptions as you wish) with the $80k SALT deduction. Usually on this website, we walk through step by step how the spreadsheet was built, but it is a little too involved here and easier for you to download the spreadsheet.

The first conclusion is yes, higher-income families benefit from the increase in the SALT cap. Generally, the benefit starts around $200-250k and maxes out around $1MM in income around $27k in tax savings:

But, let’s not forget that when TCJA was enacted and the SALT deduction was capped at $10k, these same higher income families in higher tax states faced a massive tax increase while taxes were cut everywhere else. For example, at $2.5MM income the tax increase was $92k, or about 3.7% of income:

Finally, if we look at the net effect of how taxes on higher income families in high tax states are doing after the House BBB SALT cap increase to $80k and TCJA together, there is still net a big tax increase on the rich, but slightly reversed by this legislation:

Download the spreadsheet here: Spreadsheet Solving BBB SALT Cap Analysis

Who was paying the Alternative Minimum Tax (AMT)? A spreadsheet

As we head into the heart of tax season, people (well, those who haven’t read Will Republican Tax Bill make you pay less taxes?) are taking stock of what the major changes are this year. One of the major differences is that the Tax Cuts and Jobs Act lowered the number of people subject to the AMT from 5.2 million to just 200,000.

But who were these 5.2 million people? Or how much income were they making that they would be subject to this tax?

The goal of our spreadsheet is to calculate taxes owed under the normal tax system, as compared to under the AMT system. Our spreadsheet calculates taxes owed under both systems for a variety of incomes and determines what income levels people owe more under the AMT system. Continue reading “Who was paying the Alternative Minimum Tax (AMT)? A spreadsheet”

Will the Tax Cuts and Jobs Act make you pay more or less in taxes?

House and Senate Republicans have passed a major tax bill. It makes big changes to how the government taxes its citizens. Most notably, corporations and some individuals will pay less tax (corporate rate lowered to 21%, lower individual brackets, higher standard deduction), but many deductions like the state and local deduction and personal exemption will be limited to pay for it and the deficit will likely go up.

How would this affect you? Is the backlash against certain Republican lawmakers in high tax states like California fair? Do I sense a spreadsheet in the making? After 3 prior tax posts including How to Estimate Taxes, a Marriage Tax Penalty Calculator, and an analysis of the Trump Tax Plan, you would think we had suffered enough…but here we go!

Sneak Peak – Our results indicate that married Californian homeowners making under about $700k are better off under the new plan, while those making over $700k are worse off. Disclaimer – this is really complicated, we might have made some errors (please let us know if you see any), and your mileage may definitely vary:

Continue reading “Will the Tax Cuts and Jobs Act make you pay more or less in taxes?”