Photo Credit: Ashley Satanosky
Luis and Giovanna Fernandez are among the most prominent names in the luxury real estate market in South Florida. With decades of expertise in the industry, they can handle the most high-profile and complicated transactions, while ensuring the best deals for their clients, buyers, sellers or investors. Both Luis and Giovanna specialize in high-end properties in Coral Gables, South Miami, Coconut Grove, Pinecrest and Brickell among others. Luis Fernandez sat down with Haute Residence to discuss the SALT tax laws and what states are not affected by them.
What states are not affected by the SALT Tax?
There are only seven states in the Union that do not currently have a state income tax. They are; Texas, Florida, Wyoming, Nevada, Alaska, Washington, and South Dakota. The rest of the 43 states have state income taxes.
What happened recently with regards to the legal process in the salt states and what is the latest news on this situation?
The new tax plan signed by President Trump called the Tax Cuts and Jobs Act which passed in 2017, instituted a cap on the SALT deduction. Starting with the 2018 tax year, the maximum SALT deduction available is $10,000. Previously, there was no limit; so taxpayers who itemized their deductions (meaning they don’t take the standard deductions) could deduct what they paid in state and local taxes. This is no longer the case leaving predominately high-income filers with a bigger tax bill. A SALT deduction is one of the largest federal tax expenditures, the deductions cost the Federal government trillions in missed revenue opportunities. The Congressional Budget Office expects that the tax expenditures will add up to over 8% of the GDP in 2017, nearly half of all the federal revenues projected in 2017. The loss of this deduction will affect income owners in the higher bracket ( $100,000 plus). The states that utilize the SALT deduction the most are: New York where the average SALT deduction of residents was $ 21,038, followed by Connecticut at $ 18,939, New Jersey and California where the SALT deduction was $17,148.
Photo Credit: Felipe Simo
What are the benefits of living in Florida if you are currently in a salt tax state?
The benefits to living in Florida are many; first, there are no state and local taxes on the residents compared to SALT taxes states. Florida has and will continue to benefit from an exodus of residents from high taxed states. According to the Demographic Estimating Conference, over the coming years, experts expect more than 300,000 people to move to Florida each year. Between 2020 and 2021, it estimated the population will grow by 324,025 people and 314,917 the following year. Attracting individuals of high earning in particular. The sunshine state drew in a net influx of about 17 billion in adjusted gross income since 2016 thanks to people who moved to Florida. Contrast to the State of New York, which is expecting a 2.3 Billion dollars loss in revenue for 2019 due to the restriction on the deduction to the SALT tax. Additionally, Florida is known as the Sunshine State for good reasons. The average temperature is 75 degrees year-round. 650 miles of gorgeous beaches, good employment opportunities, a constitutionally balanced state Budget and it is multicultural. Miami has been described as the capital of Latin America. These are just a few of the benefits.
What do you see happening in the next year or two with regards to the salt state tax laws and how they might change moving forward?
SALT tax states will need to economize their budget and be more frugal with expenditure. There is no doubt if they are going to compete, they must streamline the state budget and incentivize a business to invest in their states by providing tax abatement, helping to make it a pro-business environment. The blue states have challenged the IRS in the courts and are hoping that the Congress particularly, the Democratic party amends the legislation, however, Democratic legislature are concerned with the optics. More than a quarter of the benefit in repealing the SALT cap would go to the top 0.1 percent of income earners, according to an analysis by the Urban-Brookings Tax Policy Center. Nearly 57 percent of the benefit would go to the top 1 percent — households making $755,000 or more. The Democrats would appear to be embracing the rich. Therefore, political considerations in blue states must be attended to cautiously in order to address the revenue deficit.
Any other advice or thoughts on the Salt state tax laws and the situation with regards to this and Trumps initiatives in 2017?
Moving forward unless Congress amends the new IRS changes when it comes to SALT tax state deductions, states like Florida as well as Texas will continue to benefit from the exodus of high-end wealth earners fleeing to similar states benefiting in an infusion of newly discovered revenue. The adverse impact caused by the new limited deduction on states such as New York will be widespread. Real Estate value, as well as the state coiffeur, will be in decline. Leading to shortages in social welfare programs for those in lower-income brackets. State & College public educational systems will not be spared from the tightening fiscal constraints.