2025 SALT Deduction Changes: One Big Beautiful Bill Explained

SALT Deduction Basics

The State and Local Tax (SALT) deduction has been a hot topic since the Tax Cuts and Jobs Act of 2017 introduced a $10,000 cap. For high-tax states and wealthier taxpayers, that cap often meant thousands in lost deductions. But the newly passed One Big Beautiful Bill changes the game, allowing many households to claim a significantly larger SALT deduction, at least for a few years.

SALT refers to the deduction taxpayers can take for state and local taxes paid throughout the year, including property taxes, state income taxes, and certain sales taxes. Since 2018, the IRS has capped this deduction at $10,000 for most filers ($5,000 for married filing separately), regardless of how high their actual tax payments are.

That limit made itemizing less valuable for many taxpayers, especially those in states like California, New York, New Jersey, and Pennsylvania, where state and local tax burdens tend to be higher.

What the bill Changed

Under the new law, taxpayers may now deduct up to $40,000 in SALT payments on their federal return from 2025 through 2029.

For married filing separately, the cap is $20,000 during that same period.

But this expanded deduction is not unlimited. If your Modified Adjusted Gross Income (MAGI) exceeds $500,000 (for joint filers), the additional SALT deduction begins to phase out. Specifically, the $30,000 increase over the old cap is reduced by 30 percent of the amount your income exceeds that threshold.

The income thresholds are indexed for inflation and will increase slightly each year through 2029.

Come 2030, the cap switches back to $10,000 unless further legislation is passed.

Who Benefits Most

• Middle- and upper-middle-income earners in high-tax states

• Taxpayers who itemize deductions

• Homeowners with high property taxes

• People with MAGI under $500,000

If you fall into one of these categories, the expanded SALT cap could make a significant difference in your overall federal tax liability between 2025 and 2029.

Who May Not Benefit

• High-income taxpayers above the phase-out threshold

• Standard deduction filers who do not itemize

• Residents in low-tax states with minimal SALT liabilities

Also, since the expansion is temporary, long-term planning is still required.

Planning Opportunities

1. Reevaluate whether itemizing makes sense. With the expanded cap, itemizing may be more beneficial than the standard deduction again for some taxpayers.

2. Review income thresholds. If you're near the $500,000 MAGI threshold, small changes in income could affect your SALT deduction. Think carefully about timing large income events.

3. Coordinate with your tax advisor. Tax planning is more nuanced than ever. Your state’s conformity rules and your eligibility for other deductions could shift your optimal strategy.

4. Consider timing property tax payments. In certain cases, it may be advantageous to prepay or defer property taxes depending on which year provides the most benefit under the new cap.

5. Don’t forget about PTET elections. While the need for Pass-Through Entity Tax workarounds may be reduced, they still might be valuable depending on your state and business structure.

The One Big Beautiful Bill introduces a meaningful yet temporary expansion of the SALT deduction. While not a permanent fix, it gives taxpayers in high-tax states a window of opportunity to reclaim a bigger deduction that was lost in 2018.

If you think this change may affect your tax situation, it’s worth revisiting your filing strategy now. Schedule a meeting with us before tax season begins for ample planning!