Financial advisers are bracing for a no- or low-SALT diet for their clients.
The
Senate tax-reform bill, which was approved by the Senate Finance Committee on Thursday night, would get rid of all state and local tax deductions to help pay for the lowering of individual and corporate rates in the rest of the measure. Legislation that was
approved by the House on Thursday also would eliminate so-called SALT except for a $10,000 property tax deduction.
The two bills will have to be
reconciled in a conference committee if the Senate approves its version. A vote is likely in early December. Resistance from some Republicans to the elimination of state and local tax breaks could cost the final bill votes in the House.
Advisers in high tax states were quick to note that middle-class taxpayers in those states were going to be hurt by the loss of the SALT deductions.
"You could be middle-class around here and still have high property taxes as well as relatively high state and local taxes," said Lisa Kirchenbauer, president of Omega Wealth Management in Arlington, Va.
Her practice in suburban Washington, D.C., is within miles of the high-tax areas of the nation's capital and Maryland. The elimination of SALT could transcend wage brackets in the region.
"It's not as simple as saying the middle-class is going to get a tax break and the rich are going to pay more," she said.
California is another high-tax state that could feel the pinch of living without SALT.
"From an individual perspective, it's going to create a lot of holes in people's pockets," said Armand D'Alo, owner of Oak Tree Advisory Services in Carlsbad, Calif. "For our clients, it's going to be rather difficult."
A Colorado adviser doesn't have much sympathy for the SALT effects on the coasts.
"I don't see how tax simplification wouldn't include some of the largest tax deductions out there," said David Haraway, principal at Substantial Financial in Colorado Springs. "I apologize if it affects blue states, but they have the highest taxes."
An adviser in one of those blue states backs the demise of SALT because it enables the reduction of other individual and corporate rates.
"It equals itself out," said Brad Pine, owner of Bradford Pine Wealth Group in Garden City, N.Y. "For most taxpayers, it's going to streamline their taxes. The end result is that almost all are going to get a flat or lower rate."
Parsing who gains and who loses is difficult given that the final tax bill hasn't yet been hammered out on Capitol Hill.
"It's very frustrating when you're trying to do a good financial-planning job for your clients and you don't know what the tax-planning landscape is going to look like," Ms. Kirchenbauer said.
Mr. D'Alo is telling clients to anticipate potential tax pain.
"I would advise people to accelerate as much income into this year as possible," he said. "Get as big a bang for your dollar as you can in 2017, if [the tax bill] goes through."
