If you’ve felt the sting of the $10,000 “SALT cap” since 2018, there is significant news for your wallet. Under the recently enacted One Big Beautiful Bill Act (OBBBA), the State and Local Tax (SALT) deduction cap is undergoing a massive shift.
For many individual taxpayers—especially those in high-tax states or with significant property taxes—this change could mean thousands of dollars in federal tax savings. Here is everything you need to know about the new SALT increase and how it benefits you.
What is the New SALT Deduction Limit?
Starting in the 2025 tax year (for returns filed in 2026), the SALT deduction cap is quadrupling.
- New Cap: The limit for state and local taxes (income, property, or sales tax) increases from $10,000 to $40,000.
- Duration: This higher limit is currently set to remain in effect through 2029, with a 1% annual inflation adjustment each year.
- Filing Status: The $40,000 cap applies to both single filers and married couples filing jointly. Married couples filing separately have a cap of $20,000.
Quick Comparison: Old vs. New SALT Cap
| Feature | 2024 Tax Year (Current) | 2025 Tax Year (New) |
| Deduction Cap | $10,000 | $40,000 |
| Phasedown Threshold | None (Flat cap) | Starts at $500,000 MAGI |
| Standard Deduction (Single) | $14,600 | $15,750 |
| Standard Deduction (Joint) | $29,200 | $31,500 |
Top Benefits for Individual Taxpayers
1. Massive Federal Tax Savings
The most immediate benefit is a lower federal tax bill. By deducting an additional $30,000 from your taxable income, high-earners in states like California, New York, New Jersey, and Illinois can see a direct reduction in their tax liability. For example, a taxpayer in the 32% tax bracket who now utilizes the full $40,000 deduction could save roughly $9,600 compared to the previous $3,200 savings under the old cap.
2. Itemizing Becomes Worth It Again
Since the 2017 tax reform, many homeowners stopped itemizing because the $10,000 SALT cap made the Standard Deduction more attractive. With the cap now at $40,000, combining your state taxes with mortgage interest and charitable donations will likely exceed the standard deduction, allowing you to unlock even more write-offs.
3. Relief for Homeowners
If you live in an area with high property taxes, the $10,000 cap was often exhausted by your property tax alone, leaving $0 room to deduct your state income tax. The new $40,000 ceiling provides enough “breathing room” to deduct both your property taxes and your state income (or sales) taxes in full for many middle-to-upper-income families.
4. Elimination of the “Double Taxation”
Proponents of the SALT increase argue it fixes a fairness issue. Without a sufficient deduction, taxpayers are essentially paying federal taxes on money they already paid to their state and local governments. This increase significantly reduces this “tax on a tax.”
Are There Any Restrictions?
While the news is overwhelmingly positive, there are two important caveats to keep in mind:
- The Income Phasedown: The benefit is most potent for those with a Modified Adjusted Gross Income (MAGI) under $500,000. If your MAGI exceeds this threshold, the $40,000 cap begins to “phase down” by 30 cents for every dollar over the limit. Once your income hits $600,000, your SALT deduction reverts back to the original $10,000.
- Alternative Minimum Tax (AMT): SALT deductions are generally not allowed under the AMT. If your income level triggers the AMT, you might not see the full benefit of the increased cap.
Pro Tip: If you expect your income to be near the $500,000 threshold in 2025, consider deferring bonuses or accelerating certain business expenses to keep your MAGI below the phasedown line.
Conclusion: Start Planning Now
The 2025 SALT cap increase is a game-changer for individual taxpayers who have been “capped out” for the last seven years. As you head into the new tax year, it is vital to track your property tax payments and state withholdings more closely than before.
Would you like me to calculate a hypothetical tax saving scenario based on your specific state and estimated income?
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To help you see the impact, let’s look at a hypothetical scenario for the 2025 tax year.
Under the One Big Beautiful Bill Act (OBBBA), signed into law in July 2025, the SALT cap has quadrupled. This creates a significant “math shift” for middle-to-high-income earners who previously found itemizing to be a waste of time.
The Scenario: The “Capped-Out” Homeowner
- Filing Status: Married Filing Jointly
- Location: High-tax state (e.g., NJ, NY, CA, IL)
- Household Income (MAGI): $350,000 (well below the $500,000 phasedown threshold)
- Marginal Tax Rate: 24%
- Estimated State Taxes (Income + Property): $35,000
Comparison: Old vs. New Law
| Item | 2024 Rules (Old Cap) | 2025 Rules (New Cap) |
| SALT Deduction Allowed | $10,000 | $35,000 |
| Other Itemized Deductions | $15,000 | $15,000 |
| Total Potential Itemized | $25,000 | $50,000 |
| Standard Deduction | $29,200 | $31,500 |
| Deduction Taken | $29,200 (Standard) | $50,000 (Itemized) |
The Savings Breakdown
By being able to itemize with the new $40,000 SALT ceiling, this couple can deduct $18,500 more from their taxable income than if they had taken the 2025 standard deduction ($50,000 – $31,500).
- Total Federal Tax Savings: $18,500 × 24% tax rate = $4,440
[!IMPORTANT]
The Phasedown Rule: If your Modified Adjusted Gross Income (MAGI) exceeds $500,000, your benefit is reduced by 30 cents for every dollar over that limit. Once you hit $600,000, you are back to the old $10,000 cap.
