What You Need to Know About the New SALT Deduction Changes
The recently enacted federal tax law significantly raises the cap on the State and Local Tax (SALT) deduction, but not everyone will benefit equally. This guide breaks down who will and won’t be able to take advantage of the new, more generous SALT cap, key income thresholds, and other critical details, based on the latest bill language and reporting from CNN.
Overview: What Is the SALT Deduction?
The SALT deduction lets federal taxpayers subtract certain state and local taxes—such as property tax and either income or sales tax—from their taxable federal income. Historically, it has provided substantial relief for residents in high-tax states, but was capped at $10,000 by the 2017 Tax Cuts and Jobs Act.
The New SALT Cap: How It Works
Higher Cap for a Limited Time
The new law increases the SALT deduction cap to $40,000 for the 2025 tax year, replacing the $10,000 limit. This new cap will rise by 1% each year for 2026 through 2029. The deduction covers state and local income or sales taxes plus property taxes (up to the cap in total).
Who Can Benefit?
Only those who itemize deductions on their federal returns can use the new SALT cap. For many, especially those in high-tax states or cities, itemizing only makes sense if total deductions—including SALT—exceed the higher standard deduction, which has also been increased for 2025 ($15,750 for single filers, $23,625 for heads of household, $31,500 for married filing jointly, with future inflation adjustments).
Key Groups Who Stand to Benefit:
Taxpayers who itemize and pay substantial state and local taxes
Residents of high-tax states and cities (e.g., California, New York, Illinois)
Homeowners in expensive markets, as mortgage and property tax deductions can push total itemized deductions above the standard deduction
Taxpayers in states with no income tax but with high sales or property taxes
Income Phase-Out Rules
The ability to claim the full cap is limited by your income:
Modified Adjusted Gross Income (MAGI) ≤ $500,000: You can claim the full SALT deduction up to the cap.
MAGI > $500,000 but < $600,000: The deduction is reduced by 30% of the income over $500,000. (Example: MAGI of $550,000 results in a SALT cap of $25,000.)
MAGI ≥ $600,000: The deduction is capped at $10,000.
These limits apply whether you file individually or jointly (with phase-out thresholds for other statuses following the law’s guidelines).
Duration and Future Adjustments
The larger cap is temporary: it applies beginning for the 2025 tax year, with annual 1% increases through 2029. After 2029, the cap and thresholds are set to revert to prior levels unless Congress acts again.
Who Will NOT Benefit
Individuals who do not itemize deductions: If your total itemized deductions (including SALT) are less than the standard deduction, the higher SALT cap won’t affect you, though you will likely benefit from the higher standard deduction.
Individuals with MAGI of $600,000 or more: The deduction cap drops back to $10,000.
Many partners and shareholders in pass-through entities: In most states, workarounds already let such businesses deduct state taxes at the entity level, bypassing the SALT cap on individual returns.
What About State "Workarounds"?
States with high taxes have adopted workarounds letting owners of some pass-through businesses pay state taxes at the entity level and deduct them fully, reducing the impact of any SALT cap at the personal level. The new law keeps these workarounds intact.
Key Takeaways for Taxpayers
Check if you itemize: For most, the SALT changes will only matter if your deductions exceed the standard deduction.
Know your income thresholds: The phased reduction sharply limits access to the cap for higher-income households.
Expect more value in high-tax areas: Residents with high property or income taxes—but not ultra-high incomes—are positioned to benefit most.
Pass-through business owners should check if their state continues to allow entity-level tax deductions, as these are unaffected by the new cap.
Final Thoughts
The higher SALT deduction cap will offer meaningful relief for many, especially in high-tax states, but strict limits mean only a minority of filers will qualify. Review your 2025 itemized deductions and projected income early to know where you stand and talk with a tax professional to maximize your benefit under the new law.