What happens to SALT deductions if we file separately?

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Q. If a couple is married filing separately and the home is in the wife’s name and all expenses are paid from an account that is only in the wife’s name, can she take the entire $10,000 limit for the real estate tax deduction on Schedule A? I understand that the other spouse will then have to itemize and will have no real estate tax deduction. Is this correct?
— Married

A. When a married couple decides to file separate federal tax returns, there are several items to consider.

First, if one spouse itemizes, the other spouse must also itemize and cannot claim the standard deduction, said Neil Becourtney, a certified public accountant and tax partner with CohnReznick in Holmdel.

For 2019, the standard deduction for a married person filing separate filing status is $12,200, with an additional $1,300 increment if for those over age 65 or blind, he said.

Your reference to $10,000 is the limit on deducting state and local taxes (SALT), which is typically the sum of state income taxes plus real estate taxes, that was enacted by the Tax Cuts and Jobs Act (TCJA) and effective for 2018.

However, Becourtney said, the $10,000 SALT deduction limit is only applicable to taxpayers with a single, married joint or head of household filing status. The limit is $5,000 if married filing separately.

“For New Jersey gross income tax purposes, a married taxpayer filing separately is permitted to claim a deduction for up to $7,500 of real estate taxes paid on their principal residence located in New Jersey,” he said. “If the spouses maintain the same residence, each spouse reports one half of the real estate taxes paid — not to exceed $7,500 — regardless of which spouse paid the taxes.”

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This story was originally published on May 7, 2020.

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