Federal Tax Reform Proposals Impact Local Government Bonds, Property And Sales Tax Deduction

Both the House and Senate versions of the bill also differ with respect to the current SALT (State and Local Tax) deduction, which allows itemizers to deduct state and local property and sales taxes.

The federal tax reform proposals that are currently advancing in Congress include provisions of interest to counties. Specifically, both the House and Senate proposals affect certain bonds utilized by local governments and impact the state and local tax (SALT) deduction on federal income taxes.

BONDS
The House version of the legislation, which passed the chamber on Nov. 16, eliminates the tax-exempt status of advance refunding bonds and private activity bonds. Advance refunding bonds allow local governments to take advantage of lower interest rates by refinancing to save taxpayers money, while private activity bonds help finance certain infrastructure in local communities.

The current tax-exempt status of these bonds allows local governments to qualify for lower interest rates when the bonds are issued. Eliminating the tax exemption for investors who purchase them could increase costs to local governments and affect infrastructure development.

The Senate version that passed out of the Finance Committee on Nov. 16 may receive a full Senate vote soon. It retains the tax exemption on private activity bonds, but eliminates the tax-exempt status of advance refunding bonds.

SALT (State and Local Taxes)
Both the House and Senate versions of the bill also differ with respect to the current SALT  deduction, which allows itemizers to deduct state and local property and sales taxes. The House version caps the deduction for property taxes at $10,000 and eliminates it for sales taxes. The Senate version repeals the deduction entirely.

Congressional leadership has set forth an aggressive timeline for passage of a final tax reform bill – aiming to pass a bill before Christmas. However, it remains unclear when a final bill might pass. Any differences between the House and Senate versions will likely be negotiated in a conference committee.

For additional information on both the U.S. House and Senate Bills;

https://www.finance.senate.gov/imo.pdf

https://www.finance.senate.gov/news/

This article originally published by The Texas Association of Counties.