Here’s How Much RI Homeowners Could Save With New Tax Deduction Rule

About 54.8% of Rhode Island homeowners could benefit from changes in President Donald Trump’s budget bill that raises the limit on the federal state and local tax deduction, known as SALT, according to an analysis from Redfin, an internet-based real estate brokerage.

The SALT deduction allows taxpayers who itemize to deduct certain state and local taxes — primarily income, sales and property taxes — from their federal taxable income on their personal tax returns. Trump raised the cap on the deduction to $40,000. Before 2018, the deduction was unlimited, but Trump’s 2017 legislation capped SALT at $10,000.

But the share of homeowners who benefit from the higher SALT cap — and how much they save — varies widely across the country, according to Redfin. In some states, like Massachusetts, almost every homeowner could benefit, while in others, like Tennessee and Nevada, only about 1% of households are expected to benefit.

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Using local tax revenue, home value and income data, the Redfin analysis projects how much typical homeowners could expect to deduct if they itemize their deductions. Redfin’s analysis projects the share of homeowners who could benefit from the SALT cap increase, but notes the share of households who are likely to itemize their taxes will be smaller, as many will continue to take the standard deduction.

In Rhode Island, homeowners could realize a median savings of $1,762 if they itemize taxes. The projected median SALT deduction is $17,342 on a home with a median value of $368,800.

Providence metropolitan area homeowners could realize a median savings of $2,151 if they itemize taxes. The projected median SALT deduction is $18,961 on a home with a median value of $396,420.

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The states expected to benefit the most are Massachusetts (85.5% of taxpayers), New Jersey (84.2%), Oregon (79.8%), New York (75.8%) and California (74.3%). These states share one thing in common: expensive homes. All five are among the 10 states with the highest median home values.

The five lowest states do not have a state income tax, meaning homeowner households are less likely to cross the old $10,000 SALT deduction cap. Those states are, respectively, South Dakota, Alaska, Nevada, Tennessee and New Hampshire, where cap could deliver savings between $1,000 and $1,100.

Redfin Senior Economist Asad Khan said even though the savings are considerable, SALT changes are unlikely to push home prices up in most states, because relatively few homebuyers would be impacted by the increased cap. But in markets where a high share of homeowner households are affected — and the expected savings are high — there is more potential for prices to be affected.

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It’s worth noting, however, that not all states with high home values will benefit as significantly from the tax rule changes, Khan said.

For example, Washington has the fifth-highest median home value of all states, yet only 9.6% of homeowners stand to benefit from the increased cap. That’s because Washington has no state income tax, and its median property tax rate is a relatively low 0.84%. In Colorado, which has the sixth-highest median home value of all states, a low median property tax rate of 0.49% means only 15.3% of homeowners stand to benefit from the new rules.

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