De­duc­tions that help state tax­pay­ers may be cut

The Garden Island - - Front Page -

HONOLULU — Ex­perts say the Repub­li­cans’ pro­posed changes to the fed­eral tax code do not bode well for many Hawaii tax­pay­ers.

Law­mak­ers are con­sid­er­ing re­duc­ing or even abol­ish­ing de­duc­tions that are par­tic­u­larly im­por­tant to Hawaii tax fil­ers.

Pro­posed new lim­its on the mort­gage de­duc­tion would af­fect Hawaii more than many other places be­cause of the state’s sky- high hous­ing costs, while lim­it­ing or elim­i­nat­ing the fed­eral in­come tax de­duc­tion for state and lo­cal taxes would also hit lo­cal tax­pay­ers hard, Hawaii ex­perts say.

The Hawaii As­so­ci­a­tion of Real­tors is en­cour­ag­ing its mem­bers to lobby Congress to block or amend the tax pack­age to pro­tect the mort­gage de­duc­tion and other pro­vi­sions of the tax code that ben­e­fit Hawaii tax­pay­ers, said My­oung Oh, gov­ern­ment af­fairs di­rec­tor for the Hawaii Real­tors.

“Right now, as far as we are con­cerned, there will be a lot more taxes — in some cases dou­ble taxes — for some fil­ers” in the years ahead, Oh said. There are still many un­knowns about the fi­nal tax pack­age, “but we have the primer, and it’s def­i­nitely a sticker shock.”

The House ver­sion of the Tax Cuts and Jobs Act would end the fed­eral tax de­duc­tion for in­ter­est paid on stu­dent loans, which would af­fect many col­lege-ed­u­cated work­ers, while the pro­posal to elim­i­nate the de­duc­tion for state and lo­cal tax pay­ments “is def­i­nitely some­thing that will weigh heav­ily as well,” Oh said.

Elim­i­nat­ing or lim­it­ing that state and lo­cal tax de­duc­tion is a crit­i­cal com­po­nent of the pro­posed fed­eral over­haul be­cause it would off­set some of the cost of Repub­li­cans’ other plans such as re­duc­ing cor­po­rate in­come taxes and ex­empt­ing more peo­ple from es­tate taxes, the Honolulu Star-Ad­ver­tiser re­ported.

Tax­pay­ers who file item­ized re­turns to­day are al­lowed to deduct taxes paid to state and lo­cal gov­ern­ments from their gross in­comes, which re­duces their fed­eral tax li­a­bil­i­ties.

The state and lo­cal tax de­duc­tion is es­pe­cially im­por­tant in states such as Hawaii with high state and lo­cal taxes. The Tax Foun­da­tion cal­cu­lates that 200,000 Hawaii tax fil­ers used the state and lo­cal tax de­duc­tion in 2015 to re­duce their tax­able in­comes by a to­tal of $2 bil­lion.

That al­lowed Hawaii fil­ers to re­duce their fed­eral tax bur­den by $343 mil­lion in 2015, said Seth Colby, tax re­search and plan­ning of­fi­cer with the state De­part­ment of Tax­a­tion.

For Hawaii tax fil­ers who earn be­tween $80,000 and $400,000, wip­ing out that state and lo­cal tax de­duc­tion as Se­nate Repub­li­cans pro­posed last week would al­most cer­tainly can­cel out any other ben­e­fits they might en­joy from the pro­posed fed­eral tax over­haul, Colby said.

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