While the SALT is most valuable in states with higher income taxes, it is used across the country to cushion the blow of local tax burdens, including sales and property taxes. For example, in Texas, which doesn’t have a state income tax, 23 percent of itemizers still claim a SALT deduction. In Maryland, 45 percent of itemizers claim it. In three wealthy New Jersey districts represented by Republicans, SALT deductions make up a hefty 10 percent of adjusted gross incomes.
Your mortgage interest deduction
House Speaker Paul Ryan has promised to “maintain” the mortgage interest deduction, but he and other Republicans haven’t ruled out limiting the use of the tax break in some way.
Homeowners can currently deduct interest on their tax returns on $1 million in mortgage debt and another $100,000 in home equity loans, for both their first and their second homes. Our scenarios assume taxpayers took out a 30-year mortgage with a 4 percent rate to buy homes worth $375,000 to $750,000. The mortgage interest deductions ends up lowering federal tax bills by $2,000 to $6,000 for these taxpayers, covering a significant share of the interest they pay each year.
Still, the deduction is a tempting target for tax reformers. In all, it will cost the U.S. Treasury $64 billion this year, the Joint Committee on Taxation estimates.
Triple whammy
The Tax Institute at H&R Block re-ran the numbers as if all three tax breaks—401(k) contributions, mortgage interest, and SALT—were no longer available.
Combined, they’re worth from $6,500 to $31,000 annually to our upper-middle-class taxpayers.
The alternative minimum tax
It’s unlikely Congress would completely repeal all three of these tax breaks. If lawmakers end or tweak any of them, they could cushion the blow with other tax changes. One that could help affluent taxpayers is the elimination of the alternative minimum tax, or AMT. The AMT is a complicated parallel tax system designed to limit the amount by which wealthy taxpayers can lower their bills with lots of deductions.