H.R. 7561: Local Infrastructure Tax Cuts Act

This bill, known as the Local Infrastructure Tax Cuts Act, proposes changes to the Internal Revenue Code regarding individual deductions for certain state and local taxes and introduces a new deduction for qualified special assessment taxes.

Modification of Individual Deductions for State and Local Taxes

The bill seeks to modify how much taxpayers can deduct for state and local taxes from their federal taxes. Specifically, it alters the applicable limitation amounts based on the taxpayer's adjusted gross income:

• $0 for taxpayers whose modified adjusted gross income exceeds a specified threshold.
• $5,000 for married individuals filing separately.
• $10,000 for all other taxpayers.

The thresholds for modified adjusted gross income are as follows:

• $215,000 for joint filers.
• $161,250 for heads of households.
• $107,500 for other individual taxpayers.

In addition, there will be an inflation adjustment from 2027 onwards, which means the deduction limits will increase to reflect changes in the cost of living.

Deduction for Qualified Special Assessment Taxes

The bill introduces a new deduction for "qualified special assessment taxes." This type of tax is imposed by state or local governments specifically to fund community infrastructure projects that directly benefit certain real property. To qualify for this deduction, the taxes must meet the following criteria:

• Imposed by a state, territory, or political subdivision, or by the District of Columbia.
• Related to real property located in a designated special assessment district.
• For funding community infrastructure projects.

Examples of qualifying community infrastructure projects include:

• Transportation projects.
• Schools, hospitals, and emergency services facilities.
• Utility infrastructure projects for water, waste-water, stormwater, or electric services.
• Dam restoration projects.

It is important to note that the deduction for qualified special assessment taxes is limited to taxes paid or accrued related to the taxpayer’s principal residence.

Effective Dates

The changes proposed in this bill would apply to taxable years starting after December 31, 2026.

Relevant Companies

• None found