WASHINGTON \u2014 The Internal Revenue Service today clarified the tax treatment\nof state and local tax refunds arising from any year in which the new limit on\nthe state and local tax (SALT) deduction is in effect.<\/p>\n\n\n\n
In Revenue Ruling 2019-11<\/a>, posted today on IRS.gov, the IRS\nprovided four examples illustrating how the long-standing tax benefit rule\ninteracts with the new SALT limit to determine the portion of any state or\nlocal tax refund that must be included on the taxpayer\u2019s federal income tax\nreturn. Today\u2019s announcement does not affect state tax refunds received in 2018\nfor tax returns currently being filed.<\/p>\n\n\n\n The Tax Cuts and Jobs Act (TCJA), enacted in December 2017, limited the\nitemized deduction for state and local taxes to $5,000 for a married person\nfiling a separate return and $10,000 for all other tax filers. The limit\napplies to tax years 2018 to 2025.<\/p>\n\n\n\n As in the past, state and local tax refunds are not subject to tax if a\ntaxpayer chose the standard deduction for the year in which the tax was paid.\nBut if a taxpayer itemized deductions for that year on Schedule A<\/a>, Itemized Deductions, part or all of the refund\nmay be subject to tax, to the extent the taxpayer received a tax benefit from\nthe deduction.<\/p>\n\n\n\n Taxpayers who are impacted by the SALT limit\u2014those taxpayers who itemize\ndeductions and who paid state and local taxes in excess of the SALT limit\u2014may\nnot be required to include the entire state or local tax refund in income in\nthe following year. A key part of that calculation is determining the amount\nthe taxpayer would have deducted had the taxpayer only paid the actual state\nand local tax liability\u2014that is, no refund and no balance due.<\/p>\n\n\n\n In one example described in the ruling, a single taxpayer itemizes and\nclaims deductions totaling $15,000 on the taxpayer\u2019s 2018 federal income tax\nreturn. A total of $12,000 in state and local taxes is listed on the return,\nincluding state and local income taxes of $7,000. Because of the limit,\nhowever, the taxpayer\u2019s SALT deduction is only $10,000. In 2019, the taxpayer\nreceives a $750 refund of state income taxes paid in 2018, meaning the\ntaxpayer\u2019s actual 2018 state income tax liability was $6,250 ($7,000 paid minus\n$750 refund). Accordingly, the taxpayer\u2019s 2018 SALT deduction would still have\nbeen $10,000, even if it had been figured based on the actual $6,250 state and\nlocal income tax liability for 2018. The taxpayer did not receive a tax benefit\non the taxpayer\u2019s 2018 federal income tax return from the taxpayer\u2019s\noverpayment of state income tax in 2018. Thus, the taxpayer is not required to\ninclude the taxpayer\u2019s 2019 state income tax refund on the taxpayer\u2019s 2019\nreturn.<\/p>\n\n\n\n See the ruling for details on all four examples.<\/p>\n\n\n\n Today\u2019s ruling has no impact on state or local tax refunds received in 2018\nand reportable on 2018 returns taxpayers are filing this season. For\ninformation, including worksheets for reporting these refunds, see the 2018 instructions<\/a> for Form 1040, U.S. Individual Income Tax\nReturn, and Publication 525<\/a>, Taxable and Nontaxable Income. <\/p>\n","protected":false},"excerpt":{"rendered":" WASHINGTON \u2014 The Internal Revenue Service today clarified the tax treatment of state and local tax refunds arising from any year in which the new limit on the state and local tax (SALT) deduction is in effect. In Revenue Ruling 2019-11, posted today on IRS.gov, the IRS provided four examples illustrating how the long-standing tax […]<\/p>\n","protected":false},"author":1,"featured_media":2571,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"apple_news_api_created_at":"2019-04-01T10:24:03Z","apple_news_api_id":"0f4a304c-a547-4fed-a39a-2f4e8899e92f","apple_news_api_modified_at":"2019-04-01T10:24:04Z","apple_news_api_revision":"AAAAAAAAAAD\/\/\/\/\/\/\/\/\/\/w==","apple_news_api_share_url":"https:\/\/apple.news\/AD0owTKVHT-2jmi9OiJnpLw","apple_news_cover_media_provider":"image","apple_news_coverimage":0,"apple_news_coverimage_caption":"","apple_news_cover_video_id":0,"apple_news_cover_video_url":"","apple_news_cover_embedwebvideo_url":"","apple_news_is_hidden":"","apple_news_is_paid":"","apple_news_is_preview":"","apple_news_is_sponsored":"","apple_news_maturity_rating":"","apple_news_metadata":"\"\"","apple_news_pullquote":"","apple_news_pullquote_position":"middle","apple_news_slug":"","apple_news_sections":["https:\/\/news-api.apple.com\/sections\/74d71b26-dfe2-3cf6-9b79-55911f8259f1"],"apple_news_suppress_video_url":false,"apple_news_use_image_component":false,"footnotes":""},"categories":[82],"tags":[],"class_list":["post-3036","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-tax"],"apple_news_notices":[],"_links":{"self":[{"href":"https:\/\/cookco.us\/news\/wp-json\/wp\/v2\/posts\/3036","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/cookco.us\/news\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/cookco.us\/news\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/cookco.us\/news\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/cookco.us\/news\/wp-json\/wp\/v2\/comments?post=3036"}],"version-history":[{"count":0,"href":"https:\/\/cookco.us\/news\/wp-json\/wp\/v2\/posts\/3036\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/cookco.us\/news\/wp-json\/wp\/v2\/media\/2571"}],"wp:attachment":[{"href":"https:\/\/cookco.us\/news\/wp-json\/wp\/v2\/media?parent=3036"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/cookco.us\/news\/wp-json\/wp\/v2\/categories?post=3036"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/cookco.us\/news\/wp-json\/wp\/v2\/tags?post=3036"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}