State and Local Tax (SALT) Refunds Under the Tax Cuts and Jobs Act

Find out when you do—and don't—need to include a SALT refund in your income for the following year.

By , J.D.

One of the major changes brought about by the Tax Cuts and Jobs Act (TCJA), the massive tax reform laws that took effect in 2018, was a new limitation on the personal itemized deduction for state and local taxes, also called "SALT." SALT includes property taxes, state income taxes, and state sales taxes; however, itemizers must choose between deducting income taxes or sales taxes.

For 2018 through 2025, the TCJA limits the SALT deduction to a maximum of $10,000 per year ($5,000 for married taxpayers who file separately instead of jointly). So, for example, if you pay $20,000 in SALT and itemize your personal deductions instead of taking the standard deduction, you may only deduct $10,000. The remaining $10,000 is lost forever.

One big question about the limit on the SALT deduction is the impact of a state tax refund on a taxpayer who itemized personal deductions and deducted state and local taxes. Does such a taxpayer have to include the entire state or local tax refund in income in the following year? The IRS has ruled that such a refund need not be included in income if it wouldn't have affected the taxpayer's deduction the prior year. (IRS Ruling 2019-11.)

On the other hand, you must include such a state tax refund in your taxable income if you took a larger SALT deduction that you would have been entitled to if you had not received the refund.

For more information on filing tax returns, reducing tax bills, and avoiding or preparing for an audit, visit Nolo's Taxes section.

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