Recently the State and Local Tax (SALT) workarounds enacted by several states have received substantial amounts of press at the federal level. Illinois enacted a workaround law last August.
The problem is that the workaround does nothing to help an Illinois resident with an Illinois entity. Let me explain.
The SALT Cap of $10,000 was imposed at the federal level in the Tax Cuts and Jobs Act of 2017. It limits the deduction for property taxes and state income or sales taxes to $10K on Schedule A of your personal income tax return.
The new workaround allows the owners of pass-through entities, such as S-Corps or LLCs, to get around the limitation by deducting the taxes at the federal level. The problem is that the deduction of property and state income taxes have always been deductible on S-Corp and LLC returns.
Once deducted, the income or loss from the entity passes through to the personal return and the normal rules of the Illinois 1040 apply. In other words, under normal circumstances if an entity is involved, there is no SALT Limitation for an Illinois resident on an Illinois entity.
The workaround only potentially helps residents of another state who own an Illinois entity. If you live in a state that does not deduct Illinois taxes paid on your home state return, then and only then can the workaround make a difference.
Most of this bill was nothing more than political grandstanding given the fact that it did basically nothing for Illinois residents.
Let me leave you with this.
The housing market has dropped precipitously given the rise in interest rates. The weakness it’s now showing seems to have happened overnight.
1 – Home sales as counted by homes going under contract dropped 16.6% in April.
2 – Home prices in April rose to $450,600; an increase of 20% over the past year.
3 – Thirty year mortgage rates have more than doubled since the beginning of the year.
Many have been predicting a real estate recession in the coming years. This was due to extreme weaknesses in the commercial markets given the Amazon Effect.
No one expected it to begin on the residential side.
Be smart with your money. Your home may be the biggest investment you make in your entire life.
We don’t buy investments when prices are high. We buy them when they’re low. Be patient.
Prices will obviously come down. They’ll have to in order for sales to get done given the current interest rates.
Even if you have to pay a higher interest rate, that shouldn’t bother you in the long-term as long as it’s reasonably affordable. Sooner or later the interest rates will come down again and you should be able to refi into a lower rate.
At that point you’ll have exactly what you need. A good deal on a house at a lower interest rate.
More on the changing real estate markets will follow.
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Sincerely yours,
Chris Amundson
President
Accounting Solutions Ltd.
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