Last week, the IRS asked recipients to hold off on filing their tax returns until the agency could confirm whether various rebates in 21 states counted as income. Here's the outcome.
If a filer's SALT deduction is larger than it would normally be because of a state's rebate, federal taxes would have to be paid on the difference created by the state's rebate. The exception to that is if a tax filer's total state tax deduction, minus the rebate, already exceeds the $10,000 SALT cap. In that case, no federal taxes are owed.
"A person who pays $5,000 in state taxes then receives a $1,000 rebate check is, in effect, paying $4,000 in state taxes," says Jared Walczak, vice president of state projects for the Tax Foundation."If they are able to claim $5,000 on their federal income tax return under the SALT deduction, they are receiving an excess tax benefit."
In that case, you'd include $5,000 as part of your SALT deduction but count the $1,000 as taxable income, which is"functionally the same as only deducting $4,000," says Walczak., which distills the billionaire's No. 1 best piece of advice for regular investors, do's and don'ts, and three key investing principles into a clear and simple guidebook.
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