SALT benefits couples to remain unmarried

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airahcaz
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SALT benefits couples to remain unmarried

Post by airahcaz » Wed Jul 10, 2019 6:52 am

Isn’t the new deductions limit a reason for single couples to remain unmarried? Say both individuals have more than $10K in income tax. Is this essentially a $3000 question assuming the other partner would get an additional refund approximately in that amount?

“The new tax law has largely eliminated the penalty, but it has introduced another penalty for married couples living in high income tax states — a limit on state and local tax deductions on tax returns, also known as SALT. SALT is now limited to $10,000 whether you are single or married. So, a married couple can deduct $10,000 versus two unmarried partners who can deduct $10,000 each.

There are a few other tax benefits for unmarried couples with children. One partner may file as head of household (HOH) and the other partner files as single. The 2019 HOH standard deduction is $18,350 while the deduction for filing single is $12,200 for a total of $30,550. Contrast this with married filing jointly whose standard deduction is $24,400 total”.”

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1) Invest you must 2) Time is your friend 3) Impulse is your enemy 4) Basic arithmetic works 5) Stick to simplicity 6) Stay the course. (Plagiarized, but worth stealing)

simas
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Re: SALT benefits couples to remain unmarried

Post by simas » Wed Jul 10, 2019 7:34 am

1. congress makes laws all the time (including tax laws), year after year. each time they are changed, tweaked, modified based on unknown number of parameters (lobbying groups efforts, general intent), subsidizing this or that (home ownership, medical spending, some technologies i.e. car swap, etc). This is like sun rising and going down and if you want to change it , run for congress ;)

2. each individual situation is unique, so benefits/not benefits is meaningless question. there may be edge cases where this plays (i.e. two individuals making high income living basically completely separate lives in separate houses) and cases where significantly expanded standard deduction is amazing benefits (two of the same individuals without mommy's trust fund living in rental apartment and not having to worry about paying tens of thousands in properly taxes). all completely made up of cause.. there is also whole bunch of cases where it is in between and some things congress given and taken away balances out (i.e. business deduction to compensate for lowering general corporate rates, overall reduction in tax rates in each bracket). i.e. if any of the individuals in that couple is self employed and can benefit from massive reduction in the income tax based on self employment income that is way more valuable when any 'losses' from SALT limits. in short - your mileage may wary


and lastly , people avoid these threads because very often they become nothing but political click bites usually spreading FUD to uninformed when people come brainwashed and want to hear chorus of X is bad or Y is bad. No, your specific situation dictates whether these changes helped or not helped you in this specific iteration. Also, these questions are not personal or actionable and are nothing but noise, if there is specific person/couple they can present real numbers and get somewhat real answer from friendly folks here, it may or may not benefit them to take this or that course of action. people are willing to help as long as person asking is coming with open mind, presents fully, and of cause avoids weird chorus of echo-chamber political noise. Thankfully, this isn't facebook..

oldfatguy
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Re: SALT benefits couples to remain unmarried

Post by oldfatguy » Wed Jul 10, 2019 7:44 am

airahcaz wrote:
Wed Jul 10, 2019 6:52 am
Isn’t the new deductions limit a reason for single couples to remain unmarried?
It is one of several thousand factors that should be considered.

jebmke
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Re: SALT benefits couples to remain unmarried

Post by jebmke » Wed Jul 10, 2019 8:05 am

oldfatguy wrote:
Wed Jul 10, 2019 7:44 am
airahcaz wrote:
Wed Jul 10, 2019 6:52 am
Isn’t the new deductions limit a reason for single couples to remain unmarried?
It is one of several thousand factors that should be considered.
"Sorry honey, the wedding is off until 2026" :P
When you discover that you are riding a dead horse, the best strategy is to dismount.

HomeStretch
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Re: SALT benefits couples to remain unmarried

Post by HomeStretch » Wed Jul 10, 2019 8:09 am

The SALT cap limitation may or may not be a factor. A couple would have to model their single and pro forms joint tax situations.

In my “MFJ high tax state” case, the new tax law resulted in a (slightly) lower federal tax liability for 2018 than the liability would have been under the old tax law. If the new tax laws had applied to 2017, this was also true. It was easy to analyze using Turbo Tax’s “what if” feature confirmed by my excel tax model. The AMT change offset the impact of no longer itemizing deductions which included very high large state and local taxes paid.

Coltrane75
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Re: SALT benefits couples to remain unmarried

Post by Coltrane75 » Wed Jul 10, 2019 8:18 am

Tax laws change all the time; so basing long term planning decision on them is very limited. There are/should be other considerations besides $ with regards to marriage.

Additionally, an individual situation is the main relevance to whether a specific tax code helps or hurts. The blue/red high/low tax state argument is too generalized; e.g. if one owned a multi-million dollar property, the SALT cap will likely increase taxes in most if not all states.

Topic Author
airahcaz
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Re: SALT benefits couples to remain unmarried

Post by airahcaz » Wed Jul 10, 2019 8:20 am

HomeStretch wrote:
Wed Jul 10, 2019 8:09 am
The SALT cap limitation may or may not be a factor. A couple would have to model their single and pro forms joint tax situations.

In my “MFJ high tax state” case, the new tax law resulted in a (slightly) lower federal tax liability for 2018 than the liability would have been under the old tax law. If the new tax laws had applied to 2017, this was also true. It was easy to analyze using Turbo Tax’s “what if” feature confirmed by my excel tax model. The AMT change offset the impact of no longer itemizing deductions which included very high large state and local taxes paid.
There's a specific TT "What If" feature or you just mean redoing taxes uses both methods, MFJ and MFS?
1) Invest you must 2) Time is your friend 3) Impulse is your enemy 4) Basic arithmetic works 5) Stick to simplicity 6) Stay the course. (Plagiarized, but worth stealing)

THY4373
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Re: SALT benefits couples to remain unmarried

Post by THY4373 » Wed Jul 10, 2019 8:20 am

My ex and I who are on good terms benefit from the fact that one of us is able to itemize and we ensure the other one is able to claim HOH status. So we are ahead tax-wise divorced than married. Personally I think they should get rid of married status and have everybody file their own separate taxes. I would prefer to see the tax code be agnostic towards your marital status which I believe it once was many years ago.

HomeStretch
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Re: SALT benefits couples to remain unmarried

Post by HomeStretch » Wed Jul 10, 2019 8:27 am

airahcaz wrote:
Wed Jul 10, 2019 8:20 am
HomeStretch wrote:
Wed Jul 10, 2019 8:09 am
The SALT cap limitation may or may not be a factor. A couple would have to model their single and pro forms joint tax situations.

In my “MFJ high tax state” case, the new tax law resulted in a (slightly) lower federal tax liability for 2018 than the liability would have been under the old tax law. If the new tax laws had applied to 2017, this was also true. It was easy to analyze using Turbo Tax’s “what if” feature confirmed by my excel tax model. The AMT change offset the impact of no longer itemizing deductions which included very high large state and local taxes paid.
There's a specific TT "What If" feature or you just mean redoing taxes uses both methods, MFJ and MFS?
TT has a specific “what if” form that allowed me to see my MFJ tax liability under the old and new tax laws.

SDLinguist
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Re: SALT benefits couples to remain unmarried

Post by SDLinguist » Wed Jul 10, 2019 8:57 am

The real boon for MFJ is with very unequal income. The closer the income of the two parties the smaller the payoff.

Say one party makes 160k and the other 10k. If both were filing filing single the first would be almost to the top of 24% bracket and the second in the 0%. MFJ they would just barely be scratching the 24% bracket.

If both were making 100k wach then the new brackets wouldn't make much of a difference since the MFJ brackets are now just double the single brackets.

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CAsage
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Re: SALT benefits couples to remain unmarried

Post by CAsage » Thu Jul 11, 2019 7:56 am

Another real benefit, in addition to doubling the SALT deduction by dividing the property and local taxes.. is that Dependent care is generally limited to $5000 per family or per person (those might be the old limits, when my darlings were little). If a happy unmarried couple had two children, they could both claim $5,000 worth of day care - and that happens with younger children, when it's expensive. Keep all your expenses separate and you can even both claim HOH - that is permitted in a shared building if you are paying for a separate "household" like extended family or roommates. I know people who had a pretty church ceremony and no license; filed HOH and single for years.
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missingdonut
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Re: SALT benefits couples to remain unmarried

Post by missingdonut » Thu Jul 11, 2019 9:28 am

Marriage can be a tax benefit or a tax drag and there are a lot of intertwining parts to it. For a lot of couples (or potential couples) there are some provisions that hurt and some provisions that help.
THY4373 wrote:
Wed Jul 10, 2019 8:20 am
I would prefer to see the tax code be agnostic towards your marital status which I believe it once was many years ago.
It's actually impossible for the tax code to be agnostic toward marital status due to the way our country is set up. The major one is that some states are community property states and others are separate property states.

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