Under the provision a
taxpayer may claim an itemized deduction of up to $10,000 ($5,000 for married taxpayer filing a
separate return) for the aggregate of (i) State and local property taxes not paid or accrued in
carrying on a trade or business, or an activity described in section 212, and (ii) State and local
income, war profits, and excess profits taxes (or sales taxes in lieu of income, etc. taxes) paid or
accrued in the taxable year. Foreign real property taxes may not be deducted under this
exception.
The above rules apply to taxable years beginning after December 31, 2017, and
beginning before January 1, 2026.
The conference agreement also provides that, in the case of an amount paid in a taxable
year beginning before January 1, 2018, with respect to a State or local income tax imposed for a
taxable year beginning after December 31, 2017, the payment shall be treated as paid on the last
day of the taxable year for which such tax is so imposed for purposes of applying the provision
limiting the dollar amount of the deduction. Thus, under the provision, an individual may not
claim an itemized deduction in 2017 on a pre-payment of income tax for a future taxable year in
order to avoid the dollar limitation applicable for taxable years beginning after 2017.
Effective date.−The provision is effective for taxable years beginning after December 31,
2016.