Maryland Itemized Deductions

We Marylanders are screwed.
If you take the new higher Federal standard deduction, you must take the Maryland standard deduction. The Maryland legislature generously rewarded
us by raising the Maryland standard deduction in 2018 from $4000 for Married Jointly to $4500 after years of no inflationary growth.
As a result, many of us will find we are still better off itemizing, even if our Federal itemized deductions are less than the new standard deduction.
I cannot get a straight answer out of the Maryland Comptroller's office as to how they will compute Maryland itemized deductions given the $10,000 SALT and Property Tax Cap.
Anyone here know?
Let's use an example: 2018 Maryland State and Local Tax Withheld: $15,000 Property Tax Paid: $8,000 Ignore other deductions for this example
Under the prior tax law, I would deduct the combined $23,000 from Federal income. Then on my Maryland return, they would subtract SALT, so I would deduct the $8,000 Property Tax.
Under the new SALT/Property Tax Cap of $10,000, I want to know if I can still fully deduct the $8,000 Property Tax from my Maryland income.
Maryland doesn't yet have 2018 tax forms on their web site.
Anyone know?
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On 12/24/18 1:07 PM, Dimitrios Paskoudniakis wrote:

MD tax code sec. 10-217 is where you find the rule that says you can not itemize on your MD return if you take the std deduction on your federal return. In the 2018 legislative session SB 191 and HB 589 were offered to change that rule. Those bills were never voted on. I have been unable to find any other bill in the 2018 or 2019 sessions that changed the rule.
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On Monday, December 24, 2018 at 4:09:43 PM UTC-5, Dimitrios Paskoudniakis wrote:

I don't have the answer for you because my professional software w
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On Monday, December 24, 2018 at 4:09:43 PM UTC-5, Dimitrios Paskoudniakis wrote:

My professional software won't release the state modules until the first week of January, but Maryland isn't the only state in that situation. I would assume that some (most? all?) of those states will adopt changes to their tax law or forms, as appropriate, to aid their citizens.
Ira Smilovitz, EA
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On 12/24/2018 9:14 PM, ira smilovitz wrote:

Maryland's governor proposed such, but it wasn't adopted.
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On Tue, 25 Dec 2018 00:14:02 EST, ira smilovitz wrote:

I asked that question about New York a few weeks ago, but no one knew. But the state itself has released the answer.
Although New York has not yet released the actual IT-201 tax form for 2018, the instructions are available at https://www.tax.ny.gov/pdf/current_forms/it/it201i.pdf
On page 3, "What's new for 2018":
"Beginning with tax year 2018, the Tax Law allows you to itemize your deductions for New York State income tax purposes whether or not you itemized your deductions on your federal income tax return (federal Schedule A, Itemized Deductions)."
Whew! It doesn't affect me for 2018, because of a unique situation, but it will benefit me for 2019.
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How is the state law worded? Does it say you can deduct property tax, or does it say you can deduct the federal deductible taxes minus SALT?
It seems likely that it would refer to property tax, and the way you filled out the form was just a simplification that assumed a correlation between federal and state deductions. Now that the correlation has changed, I'd expect them to redo the form.
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Barry Margolin
Arlington, MA
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wrote:

Prior year Maryland tax forms instructed to deduct federal deductions less SALT.
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On 12/26/2018 8:15 AM, Barry Margolin wrote:

I just looked over the Maryland income tax statutes and see nothing that requires a Maryland RESIDENT to use the Maryland standard deduction if they use the Federal standard deduction. The instructions to the contrary for Maryland RESIDENTS seems to have been conjured up out of thin air.
The only thing I saw pertained to Maryland NONRESIDENTS:
.03.04.02.08 Deductions Allowed a Nonresident.
A. A nonresident individual may use the standard deduction as provided for under Tax-General Article, §10-219, Annotated Code of Maryland, or itemize deductions as provided for under Tax-General Article, §§10-218 and 10-219, Annotated Code of Maryland.
B. Standard Deduction.
(1) A nonresident individual may elect to use the standard deduction whether or not the individual itemizes deductions on the individual's federal income tax return in determining federal taxable income.
(2) Limitation. A nonresident may claim the standard deduction on the Maryland return in the amount computed by multiplying the appropriate standard deduction by a fraction:
(a) The numerator of which is Maryland adjusted gross income; and
(b) The denominator of which is federal adjusted gross income.
C. Itemized Deductions.
(1) Only an individual who itemizes deductions on the federal income tax return may elect to itemize deductions on the individual's Maryland income tax return.
(2) Limitation. A nonresident may claim itemized deductions on the Maryland income tax return:
(a) In the amount computed by multiplying federal itemized deductions, reduced by the amount claimed as taxes on income paid to a state or political subdivision of a state, by a fraction:
(i) The numerator of which is Maryland adjusted gross income, and
(ii) The denominator of which is federal adjusted gross income; or
(b) Actual itemized deductions verifiable by the individual as paid in Maryland.
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On 12/26/18 9:15 AM, Taxed and Spent wrote:

§10–217. (a) (1) (i) Except as otherwise provided in this subsection, an individual may elect to use the standard deduction to compute Maryland taxable income whether or not the individual itemizes deductions on the individual’s federal income tax return in determining federal taxable income. (ii) If an individual elects to use the standard deduction on the federal income tax return, the individual may not take any itemized deduction in § 10-218 of this subtitle.
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On 12/26/2018 12:42 PM, Alan wrote:

Good find, Alan.
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And 10-218 specifies how MD itemized deductions are computed. It says you take the federal itemized deductions, ...
"further reduced by the amount claimed as taxes on income paid to a state or political subdivision of a state, ..."
Notice that it says that you reduce by the amount claimed as taxes, NOT the amount that was deducted on the federal return. So I think this means it's not subject to the federal SALT limitation.
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Arlington, MA
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On 12/27/18 8:22 AM, Barry Margolin wrote:

Maryland like a bunch of states did not amend their tax code to make changes based on the new federal tax rules. Maryland's tax code for itemized deductions starts by using the total amount of itemized deductions on your federal return. This is what the code says (10-218(b))and this is what all of the prior year tax form instructions have said. Therefore, the starting point for MD, would be the bottom line of the new Schedule A (Line 17). This number will now include the $10K cap on SALT, exclusion for foreign real estate taxes, no misc. itemized deductions subject to the 2% limitation, etc. etc.. The MD code contains no additions to the federal Schedule A total. It only has subtractions. E.g., you must subtract any state and local income taxes.
Therefore, I must conclude, that MD by default, conforms to federal tax law relative to itemized deductions.
§10-218.
(a) Only an individual who itemizes deductions on the individual’s federal income tax return may elect to itemize deductions on the individual’s income tax return.
(b) An individual who elects to itemize deductions is allowed as a deduction the sum of the individual’s federal itemized deductions: {This part tells you to use the total amount on the federal Schedule A.}
(1) limited and reduced as required under the Internal Revenue Code; {This part deals with the % limitations for medical, casualty, misc. itemized deductions, charitable limitations, etc.}
(2) further reduced by any amount deducted under § 170 of the Internal Revenue Code for contributions of a preservation or conservation easement for which a credit is claimed under § 10-723 of this title; and {This part is self-evident.}
(3) further reduced by the amount claimed as taxes on income paid to a state or political subdivision of a state, after subtracting a pro rata portion of the reduction to itemized deductions required under § 68 of the Internal Revenue Code. {This part tells you to subtract any state and local income taxes and to make an adjustment if your itemized deductions were limited by your income. No adjustment is required for 2018 as the phase-out has been eliminated.}
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Suppose you had $5,000 of state and local income tax and $7,000 of real estate tax. The total is $12,000, but it's limited to $10,000 on the federal Schedule A. How much do you have to subtract on the MD return? Do you have to subtract the entire $5,000 of state and local income tax, leaving you a deduction of only $5,000 for your $7,000 of real estate tax?
Bob Sandler
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On 12/27/18 3:02 PM, Bob Sandler wrote:

You use the total amount of itemized deductions to start. This number contains only $10,000 out of $12000 of SALT. I would conclude it is up to the MD tax authorities to answer your question, probably via regulation. The law says you must subtract the amount of state and local income taxes you claimed on the federal return. You have probably already concluded that there are two ways to calculate that amount barring any change in the statute. 1. Property taxes are state deductible. You paid $7K, you deducted $10K total, so deduct $3K of income tax from the $10K total as that is the amount claimed. 2. Use a pro rata amount. I.e, you were only able to deduct 10/12 of both types of taxes. $10K / $12K x $5000 = $4167 of income tax to subtract. I think it's a matter of how much MD desires to screw their residents or prove how capable they are using division and multiplication rather than just subtraction. If memory serves me, MD is a divided state. Legislature Democrats, Governor = Republican. Let them duke it out.
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On 12/27/2018 4:01 PM, Alan wrote:

And in the meantime, assume what works best for YOU.
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On 12/27/18 4:01 PM, Alan wrote:

For what it is worth, CA is using Method 1. In the example, CA tells you to subtract the full amount of state income taxes ($5000) and then tells you to add back the federal amount disallowed ($2000). You wind up with a deduction for the property taxes you paid. ($10000 - $5000 + $2000 $7000 the amount of property taxes.
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On 12/27/2018 4:49 PM, Alan wrote:

Alan, where do you find what Calif is doing? I don't see any forms or instructions on the FTB web site.
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On Thursday, December 27, 2018 at 5:31:38 PM UTC-8, Taxed and Spent wrote: [snip]
2018 forms were recently posted. You can find the CA CA540 schedule posted. Additionally, the CA Tax & Revenue Code does not start with the total itemized deductions on the federal return. The CA code conforms to the Federal Internal Revenue Code as of 2015 or 2016 (can't remember). The CA Code adopted the federal code on itemized deductions and then makes some adjustments to that code. So..., there is no SALT cap. Property taxes are fully deductible. State income taxes and state sales & use taxes are not allowed as an itemized deduction.
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On 12/24/2018 1:07 PM, Dimitrios Paskoudniakis wrote:

Lots of good info and comments, but I will take a couple of different tacks with these questions:
1. Must you amend your MD state income tax return if you amend your Federal? Like amend the federal to change from itemized to standard deduction?
2. Must you claim on your Federal the full amount of your state income taxes, or can you claim just the amount to push your SALT to the $10,000 limit?
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