Beginning in 2025, the cap on the state and local tax (SALT) deduction will rise to $40,000 due to President Trump’s One Big Beautiful Bill Act, which fundamentally alters tax liabilities for some filings. Since 2018, the $10,000 cap has been a point of contention, and this rise offers significant albeit temporary tax relief for high income and high tax states and particular income tax brackets.
Key Data Snapshot
| Year | SALT Cap | Income Phaseout Begins | Full Cap Floor |
|---|---|---|---|
| 2025 | $40,000 | $500,000 MAGI | $600,000 MAGI |
What the Cap Increase Means
The new law states that the SALT cap will rise to $40,000 for joint filers and $20,000 for married but filing separately. This extended benefit, however, only applies to people with modified adjusted gross income (MAGI) of below $500,000. If a filer exceeds this amount, the deduction allowed will be gradually decreased, edging down by a 30% reduction for every dollar over the limit, halting at $10,000 when the MAGI passes $600,000. This new cap will also be adjusted for inflation by 1% each year until 2029 when the cap will freeze at $10,000.
Key Winners in High-Tax States
These changes primarily benefit residents of New York, California, and New Jersey, where income and property taxes are some of the highest. The tax relief will be most significant for people in the middle and upper middle tax brackets as the phase-out will be most beneficial for them. Using specific state tax payment methods, businesses can optimize deductions and avoid some restrictions of the SALT cap. The tax savings and subsequent increase in cash flow for these business owners can be used for new investments or expansions, providing entrepreneurs with a significant advantage over their W-2 employees with the same tax bracket.
Strategic Planning to Take Advantage of Temporary Relief
After 2029, the temporary spike in deductions will finish and the cap for the tax deductions will revert back to $10,000 unless changed by Congress. Taxpayers at just below the income threshold might want to strategically plan their bonuses, large sales, or transactions to stay below the income cut-off and keep access to larger deductions. Shifting income and multi-year mechanisms of spend and gift or other thresholds in the law will maximize the available benefits.
New Debates and Controversy
The action has sparked the reintroduction of relevant debates. Those in favor of the action state that it eliminates double taxation and incentivized fairness for residents of high-cost states. Those against the action state that it disproportionately helps higher earners and potentially billions of lost federal revenue at a time of increasing deficits. The urgency is dictated by the rule’s temporary status, and all stakeholders agree on the need for rapid action for the most immediate beneficiaries.
FAQs
Q1: Does every taxpayer qualify for the $40,000 deduction?
The new limit only applies to taxpayers with an income of $500,000. Above that income, the deduction is phased down quickly to $10,000.[2][3]
Q2: How long will the increased deduction last?
The increased deduction will be available until the end of 2029. After that, the deduction will revert to $10,000 and remain that way until further legislative changes.
Q3: What should high earners do to maximize this benefit?
For those high earners near the phaseout, strategic income planning will be necessary to optimize those deductions, and that should be done with a tax advisor. This should be done before the expanded deduction cap is lifted.
