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Explaining Changes to the State and Local Tax (SALT) Deduction

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The SALT deduction cap will rise from $10,000 to $40,000 in 2025 under the “One Big Beautiful Bill Act,” which President Donald Trump signed into law on July 4. Republicans in the House of Representatives approved the sweeping tax law on July 3 by a 218-214 vote, sending the bill to Trump for his signature. But the increase is temporary: the deduction limit rises by 1% each year through 2029 before reverting to the $10,000 limit in 2030, offering high-tax-state taxpayers short-term relief while maintaining a sunset provision.

New tax laws can significantly influence your financial landscape. Speak with a financial advisor about how these changes may impact your tax situation and overall financial plan.

Key Takeaways

  • The SALT deduction limit will rise from $10,000 to $40,000 in 2025 under the One Big Beautiful Bill Act.
  • The higher SALT deduction cap will sunset after 2029 and return to $10,000. House Republicans initially sought to make the increase permanent.
  • Critics say the expansion of the SALT deduction will disproportionately benefit the wealthy and add to the federal deficit.

What Trump’s Tax Plan Means for the SALT Deduction

The Tax Cuts and Jobs Act (TCJA) of 2017 imposed a $10,000 cap on the SALT deduction, limiting the amount taxpayers could deduct for state and local taxes on their federal returns. Before TCJA, there was no cap on SALT deductions. This limit particularly affected residents in high-tax states, such as New York and California, where state and local tax liabilities often exceed the $10,000 threshold.

The SALT deduction limit emerged as a major sticking point in negotiations around Trump’s One Big Beautiful Bill Act, which passed the House in a 215-214 vote on May 22. The Senate version of the bill narrowly passed on July 1 when Vice President J.D. Vance cast the tie-breaking vote after three Republican senators voted against the legislation.

From brackets to deductions, Trump’s tax proposal includes broad changes. See how the plan could affect you.

Initially, the House legislation included a $30,000 cap, but negotiations led by Republicans from high-tax states resulted in the higher $40,000 limit. Representatives like Mike Lawler (R-New York) and Nick LaLota (R-New York) advocated for this change, emphasizing the financial strain the existing cap placed on their constituents.

On June 16, the Senate announced proposed changes to the House bill, most notably lowering the SALT deduction limit back to $10,000. But after internal deliberations, Senate Republicans agreed to raise the $10,000 cap to $40,000, but included several important tweaks.

Under the Senate plan, the SALT deduction limit increases to $40,000 in 2025 and rises by an additional 1% each year thereafter through 2029. Then, starting in 2030, the deduction cap revert to $10,000, where it will remain permanently.

This is a departure from the House legislation, under which the SALT deduction limit would rise to $40,000 in 2025 and then increase by 1% annually until 2033. At that point, the increases would stop and the SALT deduction cap would remain fixed.

The amended legislation also maintained tips and overtime exemptions and permanently extended the tax brackets created by the TCJA. 

The Congressional Budget Office estimates that the new law will add $3.4 trillion to the national debt between 2025 and 2034, despite nearly $1 trillion in cuts to Medicaid.

How the SALT Deduction and Income Phaseouts Will Work

The expanded cap applies only to households with modified adjusted gross incomes (MAGI) of $500,000 or less ($250,000 for married couples filing separately). If your income is above those thresholds, your SALT deduction is gradually reduced—by 30 cents for every dollar over the limit—but it never falls below $10,000. As a result, households with MAGIs above $600,000 in 2025 are limited to a $10,000 SALT deduction.

Here’s how the SALT deduction limit will change under the One Big Beautiful Bill Act:

Tax YearNew SALT Deduction LimitNew Phase-Out Threshold (MAGI)
2025$40,000$500,000
2026$40,400$505,000
2027$40,804$510,050
2028$41,212$515,151
2029$41,624$520,303
2030$10,000

For example, say that you and your spouse live in a high-tax state like New Jersey. You have a combined annual income of $450,000 and pay $25,000 in state income taxes and $15,000 in property taxes, totaling $40,000 in SALT payments.

Under the TCJA rules, you can only deduct $10,000 of your $40,000 SALT payments on your federal tax return. However, under the new legislation, you will be able to deduct the full $40,000 in 2025, potentially reducing your taxable income by an additional $30,000.

Under the House’s original bill, the SALT deduction cap would have increased to $40,000 for households earning up to $500,000. That cap would have risen 1% each year, reaching over $43,000 by 2033. At that point, the increases would stop and the SALT deduction limit would permanently remain at the 2033 level.

Here’s how the proposed SALT deduction caps and the income thresholds for phase-outs would have increased each year under the original House bill:

Tax YearProposed SALT Deduction LimitProposed Phase-Out Threshold (MAGI)
2025$40,000$500,000
2026$40,400$505,000
2027$40,804$510,050
2028$41,212$515,151
2029$41,624$520,303
2030$42,040$525,506
2031$42,460$530,761
2032$42,884$536,069
2033$43,313$541,429

Senate Changes: Impact on Pass-Through Entities

SmartAsset: Explaining Changes to the State and Local Tax Deduction

Unlike prior versions, the Senate package retains the pass-through entity tax (PTET) workaround. Pass-through entities—including partnerships and S-corporations—can deduct their state and local taxes at the entity level. The deduction flows through to owners via K‑1s.

The House bill had barred specified service trades or businesses (like law or accounting firms) from using PTET, undermining the workaround. The Senate version removes those restrictions—for all pass-through entities, the PTET deduction survives.

Who Uses the SALT Deduction? 

Since the TCJA nearly doubled the standard deduction and capped the SALT deduction at $10,000, the percentage of taxpayers who itemize their deductions has fallen precipitously. While 31% of tax filers itemized in 2017—the year before the TCJA took effect—only 9.5% itemized in 2022, according to IRS data. 

High-earning households are much more likely to itemize their deductions and use SALT to their advantage than low- and middle-earning households. For example, nearly 60% of filers with adjusted gross incomes over $500,000 itemized their deductions in the 2022 tax year. Meanwhile, only 9.8% of those earning between $50,000 and $100,000, and 2.4% of those earning under $50,000 itemized that same year, IRS data shows.

Considering whether to itemize or take the standard deduction? Learn how the new tax plan could affect your choice.

The SALT deduction is especially pertinent in states with high tax burdens. According to the Bipartisan Policy Center, average SALT deductions among itemizers in 2022 approached the $10,000 cap in several states: 

  • Connecticut ($9,155)
  • New York ($9,085)
  • New Jersey ($9,013)
  • California ($8,894)
  • Massachusetts ($8,881)

Opposition to Increasing the SALT Deduction 

Despite its inclusion in the bill that House Republicans approved, the $40,000 cap on SALT deductions faced significant criticism across the political divide.

The Tax Foundation, a conservative-leaning think tank, previously argued that lawmakers should reject increasing the SALT deduction limit. The organization estimated that House proposal to permanently raise the cap to $40,000 and beyond would cost $320 billion more than keeping the $10,000 limit in place.

“The bill is already suffering from a math problem, as the tax cuts add up to over $4 trillion, and spending cuts have been pared back,” the organization’s director of policy analysis Garrett Watson wrote two days before the legislation received House approval in May. The original version of the bill was projected to add $3.8 trillion to the deficit.

“This is a recipe for worsening deficits at a time when Congress needs to be more concerned about the country’s fiscal outlook,” Watson added.

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Others argued the change would disproportionately benefit the wealthy. The Committee for a Responsible Federal Budget says the $40,000 cap would deliver a “large benefit” to the “wealthiest and highest income households.” The think tank estimates that a married couple earning $500,000 per year in Washington D.C. with a $2.5 million home would get a $9,600 tax break under the revised plan. 

“It would be a mistake to increase the SALT cap any further than the House already proposed last week in this bill,” the organization wrote prior to the House vote on the bill. “Limiting the SALT cap to a low level and including a sensible upper-income limit would limit revenue loss and maintain some progressivity, but it is still unwise as it would add to the bill’s deficit impact and worsen tax complexity, among other concerns.”

Bottom Line

SmartAsset: Explaining Changes to the State and Local Tax Deduction

The SALT deduction cap will rise from $10,000 to $40,000 beginning in 2025, offering a temporary reprieve for households in high-tax states. Set to increase by 1% annually through 2029, the expanded cap will then revert to its original level in 2030. This structure reflects a political compromise—delivering limited relief while avoiding a permanent expansion. For many taxpayers, the timing and phaseout of the higher cap will determine whether the change has a noticeable effect on their federal tax bill.

Tax Strategy Tips

  • financial advisor can help optimize your financial plan and potentially lower your tax liability. SmartAsset’s free tool matches you with vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
  • If you don’t know whether you’re better off taking the standard deduction or itemizing, you might want to read up on it and do some math. You could save a significant amount of money by educating yourself before the tax return deadline.
  • If you’re having trouble figuring out what kind of taxes you could end up paying, try using SmartAsset’s free income tax calculator. Just plug in where you live, your household income and your filing status and the calculator can help you figure out what you’re likely to owe.

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