FreeTaxUSA mishandles federal SALT deduction cap in state itemized deductions
This year I compared TurboTax and FreeTaxUSA and found that the latter mishandles itemized deductions in Maryland state. Posting for Marylanders and in case other states are similar, and since I’ve noticed a big push to FreeTaxUSA in this sub. Here’s the discrepancy:
Say I paid $11k in state and local income tax and $4k in property tax. That’s $15k total, but for federal deductions it’s capped at $10 due to the SALT deduction cap.
To itemize in Maryland, instructions say to start with your federal itemized deductions and subtract the state and local income taxes used for the Federal deduction.
FreeTaxUSA sees that I had over $10k in state and local income tax, and so subtracts the full $10k from my itemized deductions, ignoring the property tax portion of the deduction.
TurboTax correctly applies the $4k property tax and only $6k of the state and local income tax to the federal $10k SALT cap, and therefore only subtracts $6k from my itemized deductions.
That extra $4k in deductions is worth over $300 in state taxes.
I contacted FreeTaxUSA, but just a heads up if you are in a similar situation with that software.