Individuals working in the entertainment and media industries will feel the pinch in home-states like California and New York.
Last month, a federal judge dismissed a lawsuit against the Treasury Department brought by New York, Connecticut, Maryland, and New Jersey that challenged the constitutionality of the Tax Cuts and Jobs Act’s limitation on the federal deduction for state and local taxes paid. The TCJA imposed a $10,000 upper limit, known as the SALT Cap, to the amount individuals can deduct on their federal tax return for state and local taxes. The SALT Cap applies for tax years 2018 through 2025.
Residents of states with higher state individual income tax rates, such as California and New York, have felt the brunt of this change. Consequently, the industries predominantly based in these states such as entertainment and media have been particularly hit. Moreover, the SALT Cap limits both state tax and property tax deductions to $10,000 combined, compounding the issue for California residents, where real estate prices have increased dramatically. Not surprisingly, California saw the largest outflow of domestic residents of all states in 2018. New York came in at third. And in case we were unsure whether tax considerations caused the exodus, Florida, a state with no state income tax, received the most movers.