One of the most important changes brought in by the One Big Beautiful Bill Act is the quadrupling of the SALT deduction cap to $40,000 starting in 2025. This represents a fundamental shift for high-earning taxpayers in states with substantial income and property taxes, creating significant but time-limited tax planning opportunities.
In this article, we’ll examine the implications of this change, timing strategies, and planning approaches to maximize this temporary relief before the cap reverts to $10,000 in 2030.
Key takeaways
- The SALT cap increases to $40,000 for 2025–2029, with phaseouts limiting benefits for taxpayers with MAGI over $500,000.
- Passthrough Entity Tax elections remain fully deductible, offering business owners a workaround to bypass SALT cap limitations.
- The temporary expansion requires proactive strategies to maximize savings before the cap reverts to $10,000 in 2030.
Table of Contents
- The new SALT deduction limit
- Who benefits most from the expansion
- Strategic timing considerations
- Passthrough entity tax elections
- Trust planning implications
- Client communication strategies
- State-level tax policy responses
- How Harness can help
The new SALT deduction limit
Beginning in 2025, the SALT deduction cap increases from $10,000 to $40,000 for individual and joint filers, with modest 1% annual increases through 2029. For tax professionals working with clients in high-tax jurisdictions, this expansion is the most significant change to state and local tax deductibility since the 2017 Tax Cuts and Jobs Act imposed the original $10,000 limitation.
The expanded deduction applies only to taxpayers who itemize rather than take the standard deduction, potentially changing the tax equation for many filers. Under current law, the standard deduction stands at $15,750 for single filers and $31,500 for married couples filing jointly in 2025. Taxpayers who previously found itemizing marginally worthwhile—or not beneficial at all—may now find that the higher SALT cap tips the scales in favor of itemization.
High-income earners face major restrictions, however, as the deduction phases out for those with modified adjusted gross income (MAGI) exceeding $500,000. This threshold increases to $505,000 in 2026, maintaining the same 1% annual adjustment as the cap itself. The phaseout reduces the deduction by 30% of income above the threshold, with the benefit completely eliminated at $600,000 MAGI.
Unlike many provisions in the OBBBA, this expansion is temporary, with the cap scheduled to revert to $10,000 in 2030 unless Congress takes further action. The sunset provision adds urgency to planning decisions and requires advisors to think beyond single-year optimization toward strategies that maximize value across the entire five-year window.
Who benefits most from the expansion
Residents of high-tax states like New York, California, Illinois, and Connecticut stand to gain the most from the expanded deduction. These jurisdictions combine high state income tax rates with expensive real estate markets, meaning residents often exceed the previous $10,000 cap by substantial amounts. Upper-middle-income homeowners with significant property taxes who fall below the phaseout thresholds will experience the greatest percentage reduction in tax liability.
Taxpayers who previously stopped itemizing after the 2017 Tax Cuts and Jobs Act may now find it advantageous to revisit their deduction strategy. The doubling of the standard deduction in 2017 made itemizing less attractive for many middle- and upper-middle-income filers. With the SALT cap expansion, some of these taxpayers may discover that their total itemized deductions—including mortgage interest, charitable contributions, and now a higher SALT allowance—once again exceed the standard deduction threshold.
Clients with flexible income sources may benefit from strategic income timing to maximize deductions during this five-year window of opportunity. Business owners with discretionary bonus timing, investors with control over capital gains realization, and professionals with deferred compensation options all have levers they can pull to optimize their position relative to the phaseout thresholds.
Strategic timing considerations
The temporary nature of the expansion creates an urgent five-year planning window. Tax advisors need to engage in client conversations as soon as possible, as waiting even a single tax year means losing 20% of the available opportunity.
Tax advisors should consider accelerating deductible state, local, and tax payments into years where clients have more headroom under the expanded cap. This might involve prepaying property taxes before year-end or making estimated state tax payments in December rather than January.
For clients near the phaseout threshold, strategic income deferral or acceleration between tax years can preserve more of the expanded deduction benefit. A client projected to earn $520,000 in 2025 might consider deferring $20,000 of income to 2026, dropping below the phaseout threshold entirely and preserving the full $40,000 deduction. Conversely, a client expecting income growth might accelerate deductions into earlier years of the expansion window.
Planning for 2030 and beyond should begin early, as the scheduled reversion to the $10,000 cap may require structural changes to client tax strategies. Clients who make decisions based on the expanded cap—such as purchasing property in high-tax jurisdictions, adjusting withholding strategies, or changing residency—need to understand that the landscape will shift dramatically after 2029.
Passthrough entity tax elections
The OBBBA preserves the Passthrough Entity Tax (PTET) elections, allowing partnerships and S corporations to pay state taxes at the entity level. This is one of the most powerful planning tools available under the new legislation, particularly for business owners who find themselves phased out of the individual SALT expansion due to high income.
Entity-level state tax payments remain fully deductible on federal returns, effectively bypassing the SALT cap altogether for qualifying business income. When a partnership or S corporation elects PTET treatment, the entity pays state income tax directly and takes a federal deduction for that payment. Owners then receive a state-level credit or adjustment to avoid double taxation. The federal deduction is not subject to the $40,000 cap or the income-based phaseouts that apply to individual SALT deductions.
The continued availability of PTET elections creates an effective planning opportunity, especially for clients phased out of the individual SALT expansion. A business owner earning $700,000 through an S corporation would receive no benefit from the expanded individual SALT cap due to the phaseout. But if that S corporation makes a $50,000 PTET payment, the full amount flows through as a deduction on the owner’s federal return without any limitation.
Tax advisors need to stay current on state-specific PTET rules, however, as frameworks vary significantly and continue to shift in response to federal changes.
Trust planning implications
Trusts are subject to the same expanded SALT deduction and income-based phaseouts as individuals, which creates complex planning issues for trustees. Non-grantor trusts that retain income and file their own returns can potentially benefit from the higher cap, but the benefit may be limited or eliminated entirely due to the compressed trust tax brackets.
Because trusts reach higher tax brackets at much lower income thresholds, strategic distributions to beneficiaries may preserve more of the expanded deduction. A trust with $100,000 of income would face the top marginal rate and potentially exceed the MAGI phaseout threshold. But if the trustee distributes $50,000 to beneficiaries, the trust’s income—and its position relative to the phaseout—changes dramatically.
The five-year window creates a unique opportunity to optimize trust tax positions, but any strategy must respect the trust document’s terms and the trustee’s fiduciary obligations. In some cases, the tax savings from maximizing SALT deductions may justify distribution strategies that would not otherwise be considered, provided they serve the beneficiaries’ best interests.
Client communication strategies
Tax advisors should proactively identify which clients will benefit from the expanded cap versus those affected by phaseouts to manage expectations effectively. Not every client in a high-tax state will see substantial savings, and some may see none at all. Segmenting your client base by income level, state of residence, and current deduction patterns allows for targeted, relevant communication rather than generic updates that may not apply to individual situations.
Creating personalized tax projections that illustrate the before and after impact can help clients visualize potential savings and justify planning fees. A side-by-side comparison showing tax liability for the year 2024 versus projected tax liability for the year 2025 under various scenarios makes the value of proactive planning tangible. These projections become particularly compelling when they demonstrate multi-year cumulative savings rather than focusing solely on a single tax year.
State-level tax policy responses
States with automatic conformity to federal tax changes may need to address the revenue implications of the expanded SALT cap. When residents claim larger federal deductions, it typically reduces their federal taxable income, which serves as the starting point for many state income tax calculations. States that automatically conform to federal adjusted gross income definitions may see their own tax revenues decline unless they introduce decoupling provisions or other adjustments.
Some high-tax states may consider adjustments to their own tax structures to help residents maximize the benefit of the federal expansion. This could include modifications to state deduction limitations, changes to how PTET payments are treated, or even rate adjustments designed to capture some of the federal tax savings residents experience. The political dynamics vary considerably by state, with some legislatures eager to amplify the federal relief and others viewing it as an opportunity to increase state revenues.
Tax advisors should monitor state-level legislative responses, as the patchwork of state conformity creates not only additional complexity but planning opportunities as well. A state that decouples from certain federal provisions might inadvertently create arbitrage opportunities for taxpayers who can shift income or deductions between jurisdictions. Conversely, aggressive state responses could eliminate benefits that appear available under a surface-level reading of the federal law.
How Harness can help
The SALT deduction expansion, its phaseouts, and the planning strategies built around it—from PTET elections to trust distributions to state-by-state conformity issues—touch nearly every part of a tax advisory practice. Keeping up with all of it, for every client situation, is a lot to carry alone.
Harness partners with tax firms to give advisors a professional community they can lean on: a Tax Advisory Council of experienced tax attorneys, a network of peer firms working through the same OBBBA questions, and coaching that helps firms prioritize the planning conversations that matter most to clients. That collective expertise makes it easier to stay current on fast-moving legislation like the SALT cap changes and to advise clients with confidence.
Learn more about partnering with Harness and bring the full weight of a national advisory community to your clients’ tax planning.
Meet the Authors
David Snider
David Snider is the Founder & CEO of Harness, a platform to power entrepreneurial tax advisors & their clients. Harness was recognized by Inc Magazine as one of the 200 fastest growing companies in the U.S. David incubated Harness as an executive-in-residence at Bain Capital Ventures. Previously he served as COO & CFO of Compass, a real estate tech company that he helped grow from pre-launch to a valuation of $1.8 billion. David was an investor at Bain Capital private equity, where he completed investments worth over $2 billion as well as the IPO of Sensata on the NYSE. He is the author of Money Makers, published by Macmillan.
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