Federal Tax Reform Bill Passes, Affects Bonds and Property Tax Deduction

January 05, 2018

Legislative News

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On Dec. 20, Congress passed a comprehensive tax reform bill that eliminates the tax-exempt status of advance refunding bonds and modifies the current state and local tax (SALT) deduction. The bill (HR 1​), also known as the Tax Cuts and Jobs Act, was signed by the president on Dec. 22.

Bonds

While the final version of the bill retains the tax exempt status of municipal bonds and private activity bonds, it eliminates the tax exemption for advance refunding bonds. Advance refunding bonds allow local governments to refinance bonds to take advantage of lower interest rates and save taxpayers money. Eliminating this tax exemption may increase costs to local governments and affect infrastructure development.

State and Local Tax (SALT) Deduction

Additionally, the final version caps the current SALT deduction, which allows itemizers to deduct state and local property and sales taxes. Under the bill, the SALT deduction is capped at $10,000 on a combination of property taxes and either sales or income taxes. Earlier versions of the legislation eliminated the deduction entirely.

Additional information about the tax bill and its impact on counties is available on the National Association of Counties (NACo) website.