In his May journal entry, our partner Kurt Kobes commented on a few different topics, including the potential sunsetting of the 2017 “Tax Cuts and Jobs Act” (TCJA) after 12/31/2025. If you have been paying attention to the news recently, you probably already know that the government has now passed new legislation which has addressed that issue, with the “One Big Beautiful Bill Act” (OBBBA).
Hopefully you have already seen some communications from our team on this new legislation. Baird held a Webinar to review the impacts of the legislation, hosted by our Director of Advanced Planning, Tim Steffen. You can access a replay of that Webinar here if you would like to learn more about this topic:
Webinar: Breaking Down One Big Beautiful Bill Act
This legislation has a lot of changes in it. While our team works with clients all over the country, we do have a lot of clients that live here in Minnesota. Minnesota has a relatively high state income tax system, so many of our clients have been specifically interested in the State and Local Tax (SALT) deduction increase from $10K for a married couple filing joint under the TCJA, to $40K under the OBBBA. Of course, there are income limits where this benefit phases out and you do have to itemize your taxes to benefit from this provision. There has been a lot of talk nationally about how this SALT increase may benefit “blue” states, such as Minnesota, more than “red” states which often have lower or even no income taxes but that may not be entirely true.
Let me use Texas as an example, since it is a state that does not have personal income tax and is often referred to as a “red” state. Of course, the state of Texas and local municipalities in the state still need revenue to provide for essential services such as maintaining roads and schools and providing police and fire department services. Where does this come from? Taxes of course, just not income taxes. As an example, in the link below you can see that Texas has one of the highest rates on property taxes in the country. Per the IRS, those high property taxes in the “red” state of Texas are part of the potentially deductible SALT taxes, just like the high-income taxes paid by our Minnesota clients. So even without a state income tax, a Texas resident who pays more than $10K per year in property taxes and itemizes their taxes may see some benefit from the increased SALT deduction limit as well.
https://taxfoundation.org/data/all/state/property-taxes-by-state-county/
My point here is that we all benefit from looking a little deeper at each issue. If we just read the headlines or glance at social media, we may miss out on some of the nuances in each situation. None of us should jump to a conclusion that we won’t benefit from a new piece of legislation without considering all the variables in the equation. Like anything related to taxes, we always recommend you discuss your specific situation with your tax advisors. If you are one of our clients, talk to us about how we can help coordinate with your tax advisors to align your financial plan with the tax planning they are doing for you.
Anders