H.R. 7561 — Local Infrastructure Tax Cuts Act

This section revises the limitation on the deduction for state and local taxes—currently $10,000 ($5,000 for married individuals filing separately) for all taxpayers—to $0 for taxable years beginning after December 31, 2026, in the case of taxpayers whose modified adjusted gross income exceeds specified thresholds ($215,000 for joint returns, $161,250 for heads of household, and $107,500 for other filers ($0 currently)). For other taxpayers, the limitation remains $5,000 for married individuals filing separately and $10,000 otherwise. Modified adjusted gross income equals adjusted gross income increased by amounts excluded from gross income under IRC §§911, 931, or 933 (i.e., certain foreign earned income, possessions income); the dollar amounts are indexed for inflation after 2027 using chained CPI with 2026 as the base year.

This section establishes an itemized deduction under Section 164(a)(5) for qualified special assessment taxes paid or accrued with respect to a taxpayer's principal residence (within the meaning of Section 121), effective for taxable years beginning after December 31, 2026. Qualified special assessment taxes are those imposed by a state, possession of the United States, political subdivision, or the District of Columbia on real property in a special assessment district to fund community infrastructure projects (e.g., transportation; schools, hospitals, police, fire, emergency response, or other community support facilities; water, wastewater, stormwater, telecommunications, electric, gas, or other utility infrastructure; dam restoration) owned by governmental entities or not-for-profit member-owned utility services that directly benefit the property. (Thus, the deduction is subject to existing limitations on state and local tax deductions, including the conforming amendment incorporating it into the cap on certain deductible taxes.)