To amend the Internal Revenue Code of 1986 to modify the limitation on individual deductions for certain state and local taxes and to allow a deduction for qualified special assessment taxes, and for other purposes.

Bill Number

H.R. 7561

Origin Chamber

House

Congress

119th Congress, Session 2

Status

Introduced

Latest Action

2026-02-12: Referred to the House Committee on Ways and Means.

Last Updated

2026-02-13T09:06:41Z

AI-Generated Summary

Purpose

The "Local Infrastructure Tax Cuts Act" (H.R. 7561) aims to adjust federal tax rules for individual deductions related to state and local taxes. It modifies the existing cap on deductions for certain state and local taxes (known as SALT deductions) to make them more accessible based on income levels and introduces a new deduction for specific taxes funding local infrastructure projects.

Key Provisions

• Modification of SALT Deduction Limit (Section 2):
• The cap on deductible state and local taxes (such as property, income, and sales taxes) is changed to an "applicable limitation amount" based on a taxpayer's modified adjusted gross income (MAGI, which is adjusted gross income plus certain foreign income exclusions).
• Limitation amounts:
• $0 if MAGI exceeds the threshold (e.g., $215,000 for joint filers, $161,250 for heads of household, $107,500 for singles).
• $5,000 for married individuals filing separately.
• $10,000 for other taxpayers below the threshold.
• Thresholds are adjusted annually for inflation starting in 2028, using a cost-of-living formula tied to 2026 as the base year, rounded to the nearest $50.
• Applies to tax years beginning after December 31, 2026.

• New Deduction for Qualified Special Assessment Taxes (Section 3):
• Allows deduction of "qualified special assessment taxes," which are levies imposed by states, local governments, U.S. possessions, or the District of Columbia on real property in designated special assessment districts.
• These taxes must fund "community infrastructure" projects that directly benefit the property, such as:
• Transportation projects.
• Schools, hospitals, police/fire stations, or other community support facilities.
• Water, wastewater, stormwater, telecommunications, electric, gas, or other utility infrastructure.
• Dam restoration projects.
• Projects must be owned by government entities or not-for-profit, member-owned utility services.
• Deduction is limited to taxes on the taxpayer's principal residence (primary home, as defined under tax rules for home sale exclusions).
• These taxes are also subject to the overall SALT limitation.
• Applies to tax years beginning after December 31, 2026.

Significant Changes to Existing Law

• SALT Cap Adjustment: Under current law (from the 2017 Tax Cuts and Jobs Act), all taxpayers can deduct up to $10,000 in state and local taxes regardless of income. This bill replaces the flat cap with an income-based phase-out, eliminating the deduction entirely for higher-income earners while preserving it for middle- and lower-income taxpayers.
• New Deductible Category: Previously, special assessment taxes for infrastructure were not explicitly deductible or were limited. This adds a clear deduction for them, but only for principal residences and tied to specific community benefits, with conforming updates to ensure they fall under the SALT cap.
• No changes to corporate or other non-individual deductions; focuses solely on individual filers.

Potential Impacts

• On Citizens: Middle-income homeowners in high-tax states (e.g., those paying significant property taxes) may see tax savings up to $10,000, reducing their federal tax burden. Higher-income individuals lose the full SALT benefit, potentially increasing their taxes. Homeowners in areas with infrastructure needs could indirectly benefit from easier local funding, leading to improved community services like roads or utilities.
• On Government Agencies: The Internal Revenue Service (IRS) will need to update forms, guidance, and enforcement for the new income-based rules and special assessments, increasing administrative workload. State and local governments may find it easier to impose and collect special taxes for infrastructure, as the federal deduction incentivizes taxpayer acceptance.
• On International Relations: Minimal direct impact, though the inclusion of U.S. possessions (e.g., Puerto Rico) in special assessment rules could support local infrastructure funding in territories without affecting broader foreign policy.

Main Stakeholders Affected

• Individual Taxpayers: Primarily middle-income homeowners (under the thresholds) who itemize deductions and live in high-tax or infrastructure-challenged areas; higher-income filers face reduced benefits.
• State and Local Governments: Benefit from potential revenue for infrastructure projects via special assessments, especially in urban or rural districts needing upgrades.
• Communities and Utilities: Not-for-profit utilities and residents in special assessment districts gain from funded projects like schools, utilities, or transportation.
• Federal Government (IRS and Treasury): Handles implementation and revenue collection, with possible federal revenue loss from expanded deductions (estimated in billions, though not specified in the bill).

Notable Legal, Constitutional, or Political Implications

• Legal: Aligns with the Internal Revenue Code's structure for itemized deductions but requires IRS rulemaking for MAGI calculations and project qualifications, potentially leading to audits or disputes over what counts as "community infrastructure." The principal residence limit ties into existing homeownership tax perks, ensuring consistency.
• Constitutional: No apparent challenges; tax deductions are a congressional power under Article I, and the bill does not discriminate by state or create unequal protection issues.
• Political: Revises a controversial 2017 tax cap that disproportionately affected high-tax "blue" states, potentially appealing to moderates by protecting middle-class deductions while curbing benefits for the wealthy. Could influence future tax reform debates on federalism and local funding, with fiscal implications for the federal deficit if deductions reduce revenue.

This summary was generated by AI and may contain inaccuracies. Refer to the official source document for the authoritative text.

Sponsor

Rep. Stevens, Haley M. [D-MI-11]

Cosponsors (3)

Rep. Dingell, Debbie [D-MI-6], Rep. Scholten, Hillary J. [D-MI-3], Rep. McDonald Rivet, Kristen [D-MI-8]

Recent Actions

• 2026-02-12: Referred to the House Committee on Ways and Means.
• 2026-02-12: Introduced in House
• 2026-02-12: Introduced in House

Bill Versions

• Local Infrastructure Tax Cuts Act — issued 2026-02-12 — PDF (7 pages)