SALT relief: House votes to kill cap on property tax deductions

The 2017 cap hit high-price home markets like California and New Jersey

A day after impeaching President Donald Trump, the House of Representatives was back in session debating and passing a bill to eliminate the federal cap on property tax deductions.

The bill, HR 5377, passed Thursday by a 227 to 196 vote. It nixes the provision in the 2017 Republican tax bill that set a $10,000 cap on state and local taxes, known as SALT, that can be used as federal deductions. The cap strangled demand in some high-priced housing markets in coastal and northern states – most of the so-called blue states that didn’t vote for Trump.

The debate on the House floor again highlighted the nation’s divisions, but this time it focused on real estate. If you can afford a $400,000 home in California, New Jersey or Massachusetts, you’re probably a regular Joe, and could even be working class, but residents of other states might call you wealthy. If you spend $400,000 on a home in Mississippi or Louisiana, you might be well-off, but the price of your home won’t impress people outside your state.

“Republicans gave away almost $2 trillion in tax cuts to corporations and the wealthy,” Representative Norma Torres (D-CA) said during the debate. “They paid for this tax scam on the backs of hardworking American families.”

In Torres’ home state of California, the effective real estate tax rate is 0.77%, according to WalletHub. That’s lower than the national average, but housing prices in California are among the highest in the nation. The median home price was $605,280 in October, according to the California Association of Realtors. SALT also includes car excise taxes and state income taxes.

“The benefits of HR 5377 primarily go to a select group of people in a few key states and it will overwhelmingly go to people that are already wealthy,” Representative Tom Cole (R-OK) said in the debate. “Though the majority likes to claim that Republicans only want to cut taxes for the rich, it’s ironic that the majority is now pushing a special tax break that literally only benefits the rich.”

In Cole’s home state, Oklahoma, the average property tax is 0.9%, higher than California, WalletHub said. But, the median home price was $147,800 in October, according to Zillow.

The White House budget office issued a statement saying states should reduce their spending so SALT costs stay within the $10,000 SALT cap. Money raised by property taxes typically fund roads, schools, law enforcement, and social services.

“This legislation would unfairly force all federal taxpayers to subsidize a tax break for the wealthy, as well as excessive government spending by fiscally irresponsible states,” the White House statement said.

HR 5377 doubles the SALT cap to $20,000 per household for 2019 and eliminates it in 2020 and 2021. It pays for the change by restoring the top income tax rate to 39.6% from the lower 37% adopted as part of the 2017 tax changes.

Now, the bill will head to the Senate, which has to approve it before it can be sent to the president’s desk. Senate Majority Leader Mitch McConnell has said the Senate won’t consider legislation until it finishes Trump’s impeachment trial, which McConnell said he expects to happen in January.