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A question was presented earlier on this site regarding section 11042 'a consumer rebate for $3700.00.'

I suspect this question was generated from the following page:

https://pro.oxfordclub.com/p/TAX1YRREFTO99OXFLTMALAGBBRKIUP/EOXFU350/

The site claims the following:

New Tax Reform Law Contains Hidden $3,700 “Consumer Bonus” in Section 11042

Find Out Below How to Determine if You Are One of the 121 Million Taxpaying Americans Eligible to Receive Up to $3,700. But You Must Act by April 17 to Collect...

There's a video and a full transcript is available.

Is this legit, or entirely bogus?

  • I've added detail. The original question, closed as unclear, has had sufficient traffic that it's likely we'll see this come up again. A clear answer to this will help future visitors who find this page via search. – Chris W. Rea Mar 10 '18 at 17:30
  • I answered, but in hindsight, bad precedent. Given that both versions of this question were asked by brand new members. It’s about as spammy as it gets, and brings attention to newsletters of questionable origin. – JTP - Apologise to Monica Mar 10 '18 at 18:31
  • @JoeTaxpayer My own guess was that this question was asked by somebody who arrived at the first question from a Google search, trying to find information about it. Try searching on "section 11042 rebate". We're the top hit (from my vantage point). The hundreds of views on the original question also leads me to believe it's a search result destination. I doubt all of those views are from active members. – Chris W. Rea Mar 10 '18 at 20:02
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Section 11042 of H.R. 1, the 2017 tax bill, is titled:

SEC. 11042. LIMITATION ON DEDUCTION FOR STATE AND LOCAL, ETC. TAXES.

If you read the language of that section, that is indeed the section that limits the SALT deduction, a provision that was subject to much political debate. Before enactment of HR 1, you could fully deduct your paid state and local income taxes. This provision limits that amount for tax years after 2017 and before 2026 to $10,000.

So the claim is "legit" in the sense that if you are at the top marginal tax rate and you itemize your deductions and you paid $10,000 or more in state or local taxes, your tax bill will be $3,700 lower in 2018 than it would be without 26 USC 164 (which Section 11042 modifies).

However, it is entirely bogus because that section of the 2017 tax bill does not provide any new benefit at all, like the copy explicitly states (it is in fact limiting an existing benefit) and because that provision does not even apply to tax year 2017 anyway. If you were already benefiting from "this section" you will continue to benefit (albeit to a lesser extent). If you were not already benefiting, you will continue to not benefit.

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    +1 for the research. The spammy ad led me to a different conclusion, as it kept referencing money that was spent. Either way, I'd advise to avoid newsletters that promote using these methods. – JTP - Apologise to Monica Mar 11 '18 at 16:14
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The tax code has a choice. If you itemize, you had a choice of taking your state tax or sales tax, but not both.

The ad copy is offensive, like some of Motley Fool ads posted here, it has a remarkably low signal to noise. Given how many returns are filed each year and what fraction of those itemize, the potential deduction only applies to the limited few, perhaps 20% of filers, but of those, most are still best off just using their state income tax.

Not a scam, just someone using too many words to try to get you to subscribe to a newsletter or buy a book.

Edit - The IRS publishes a wonderful number of reports on Tax Stats. The most recent report covers 2015. 150M returns filed. Of those, 45M returns itemized their deductions. 30%, higher than the guess I made while answering above. Of those 45M, 9.6M used sales tax vs state income tax. 21% of itemizers, or 6.4% of total returns.

The specific issue "is it a scam" has an answer of "no". The US tax code is littered with odd choices that few are likely to be aware of. Very often, it's just a matter of searching and reading about what might apply to you, the individual/couple doing your taxes. This particular issue is worth a bit of money to those who happen to have a high cost purchase or series of purchases in a given year, putting their sales tax well about their state income tax. I would imagine that itemizers who live in a state with no income tax are aware of the sales tax deduction.

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    So, essentially, they're trying to make people think it's some secret to getting more back on a tax return, when in reality it's common knowledge, and yet not widely applicable? I'm curious: How many of those 20% estimated who could itemize, do you think would be likely to actually get the "$3700" amount in the headline? And would they be $3700 better off than if they didn't itemize, or is that assuming claiming and maximizing all the different things that could be itemized? – Chris W. Rea Mar 10 '18 at 20:13

protected by Chris W. Rea Mar 19 '18 at 16:43

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