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I only see the complexity when you work across multiple states, or work in one and live in the other, and both try to claim all of your income. The real problem

I only see the complexity when you work across multiple states, or work in one and live in the other, and both try to claim all of your income. The real problem with the deductibility is that it causes the people in lower tax localities to subsidize the higher tax localities in terms of the federal budget. People in California are paying federal income taxes on up to 13% less of their income than people in Washington or Texas.

_delirium 10y ago
Remember that the federal tax deductibility isn't only on state income tax, but all state taxes. I live in TX, and many of us deduct our very high state property taxes. So yes, there's there's an implicit subsidy, but it's fairly complex how it works out, depending not only on state, but income levels within the state. Generally, TX works out better for the very wealthy, and not necessarily great for lower-to-mid-income homeowners, because the latter tend to have higher ratios of property value to income, where TX's incredibly high property taxes hit them harder. For example, if you make $50k and live in a $150k house, your overall state taxes are higher in TX than in CA. But if you make $50m, you probably don't live in a $150m house; if you lived in say, a $5m house while making $50m, your TX taxes would be much lower than your CA taxes. In addition, many people take advantage of a nice loophole with TX property taxes, in that you get to choose when to pay them. TX allows tax year 2016 property taxes to be paid in any month between January 2016 and January 2017, inclusive. So what many people do is pay their property tax every other year, two years at a time. For example, you pay no property taxes in calendar year 2016, and pay both your 2016 and 2017 taxes in January 2017 (the last month in which to pay the 2016 taxes, and the first month in which to pay the 2017 taxes). Then on your federal taxes, take the standard deduction in 2016, and report two years' worth of state property tax deductions for tax year 2017. Works out as a pretty big win.
- mattmcknight 10y ago
  My point was that people in those states with lower total taxes are paying more in federal tax. Deductibility on property taxes doesn't help renters out so much- and the average payment in TX is less than $4000. In addition, state and local sales taxes are not deductible. So, despite all of your points, Texans on average are getting 0.86% off of their federal tax basis from state and local tax deductions, while New Yorkers are getting 6.16% and Californians get 5.14% off. While the New Yorkers and Californians may be paying more total tax, Texans are paying more for the Federal Income tax.

_delirium 10y ago

Remember that the federal tax deductibility isn't only on state income tax, but all state taxes. I live in TX, and many of us deduct our very high state property taxes. So yes, there's there's an implicit subsidy, but it's fairly complex how it works out, depending not only on state, but income levels within the state. Generally, TX works out better for the very wealthy, and not necessarily great for lower-to-mid-income homeowners, because the latter tend to have higher ratios of property value to income, where TX's incredibly high property taxes hit them harder. For example, if you make $50k and live in a $150k house, your overall state taxes are higher in TX than in CA. But if you make $50m, you probably don't live in a $150m house; if you lived in say, a $5m house while making $50m, your TX taxes would be much lower than your CA taxes. In addition, many people take advantage of a nice loophole with TX property taxes, in that you get to choose when to pay them. TX allows tax year 2016 property taxes to be paid in any month between January 2016 and January 2017, inclusive. So what many people do is pay their property tax every other year, two years at a time. For example, you pay no property taxes in calendar year 2016, and pay both your 2016 and 2017 taxes in January 2017 (the last month in which to pay the 2016 taxes, and the first month in which to pay the 2017 taxes). Then on your federal taxes, take the standard deduction in 2016, and report two years' worth of state property tax deductions for tax year 2017. Works out as a pretty big win.

mattmcknight 10y ago
My point was that people in those states with lower total taxes are paying more in federal tax. Deductibility on property taxes doesn't help renters out so much- and the average payment in TX is less than $4000. In addition, state and local sales taxes are not deductible. So, despite all of your points, Texans on average are getting 0.86% off of their federal tax basis from state and local tax deductions, while New Yorkers are getting 6.16% and Californians get 5.14% off. While the New Yorkers and Californians may be paying more total tax, Texans are paying more for the Federal Income tax.