This week, Congress passed the Republican tax plan, clearing a path for the largest overhaul of the U.S. tax code since the Reagan administration. The bill is ready for the president’s signature, which is expected to happen on January 3, 2018. The measure passed the House with 224 Republican votes over unified Democratic opposition, and 12 Republican no votes. The bill’s provisions will take effect immediately and taxpayers should understand how changes to the tax code will impact their returns. The 12 dissenting Republicans were primarily from California, New Jersey, and New York, high tax states where the tax plan is deeply unpopular because of reductions to the state and local income tax (SALT), property tax, and mortgage interest deductions.
California will lose more from the $10,000 cap to the SALT deduction than any other state. In 2015, Californians claimed $112.6 billion from the SALT deduction, over 20 percent of the total amount claimed by U.S. taxpayers under SALT. Itemizers will be impacted by caps to SALT, property taxes, and mortgage interest deductions, but Republicans anticipate a higher percentage of households will opt for the standard deduction, which will double in value under the new tax code. The deduction caps implemented by the tax code overhaul are set to expire on December 31, 2025 along with the cuts to the individual rate. Congress will decide whether to let these provisions expire or pass new legislation to permanently add this language to the tax code