Which Places Benefit Most from State and Local Tax Deductions?

Some of the most substantial deductions in the federal tax code are the itemized deductions for state and local income, sales, and real estate taxes. This map shows the variation, by county, in the amounts of these deductions. The measurement used here is mean deduction amount taken per return: in other words, the total of all of the deductions for state and local taxes, divided by number of returns filed. The results show that the benefits of these deductions vary substantially from county to county.

There are two reasons for this variation. The first is that higher-income taxpayers tend to take larger deductions, and this effect is very strong. People with very high incomes tend to have very high levels of sub-federal taxes paid. This effect is then further magnified by the fact that not everyone takes itemized deductions. Lower-income taxpayers tend to opt for the standard deduction instead.

The second, though, is that state and local tax regimes themselves differ substantially. The places that benefit most from this federal deduction tend to have high state and local taxes overall. The ten counties benefiting most from these deductions are all located in four states, ones known to have high tax burdens generally:

Top Ten Counties for State and Local Tax Deductions

County

Average State and Local Deductions Taken

New York County, NY

$20,621

Westchester County, NY

$14,136

Fairfield County, CT

$13,751

Marin County, CA

$13,693

San Mateo County, CA

$12,513

Nassau County, NY

$10,985

Morris County, NJ

$10,833

Somerset County, NJ

$10,454

Hunterdon County, NJ

$10,444

Santa Clara County, CA

$10,140

These counties all represent the intersection of the two characteristics mentioned above. They have many high-income taxpayers, and they also have high taxes.

Much more average results come from the counties with only one of the two characteristics: high-income counties in low-tax states, or vice versa. Williamson County, Tennessee, for example, has very high incomes but a low tax burden, and therefore takes a deduction of only $2143 per return. Cumberland County, New Jersey, is the opposite: a lower-income county in a high-tax state. It takes a similarly-sized deduction of $2176 per return.

Finally, the counties that are neither very wealthy nor very heavily-taxed come out at the bottom. Many rural counties in Texas, the Dakotas, Alaska, and Tennessee essentially don’t benefit from the deduction at all. It should be noted that for privacy reasons, the IRS excludes data on the deduction entirely if fewer than 20 people in the county take it. Therefore, those counties where $0 is the reported number on this map may actually have a handful of filers taking the deduction.


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