The tax arena is shifting quite dramatically in 2025, with the One Big Beautiful Bill Act raising the SALT deduction cap from $10,000 to $40,000. This fourfold increase creates major tax-saving opportunities, especially for those in high-tax states constrained by the previous limit.
These expanded benefits come with limitations, however—phase-out provisions for high earners and a sunset date of 2030. In this article, we’ll examine the new SALT deduction changes, who benefits most, and how platforms like Harness can help you stay tax-efficient.
Key takeaways
- SALT cap rises to $40,000 in 2025 with 1% annual increases through 2029, before reverting to $10,000 in 2030.
- Phase-outs begin at $500,000 MAGI, reducing benefits by $0.30 per dollar until reaching zero at $600,000 MAGI.
- High-tax state residents, upper-middle-income households, and those with substantial property and state income taxes will benefit most.
- For taxpayers near phase-out thresholds or deciding between itemizing and standard deduction, strategic tax planning can make a major difference.
Table of Contents
- What is the SALT deduction and why it matters
- Historical context of the SALT deduction cap
- Key changes to the SALT deduction 2025
- Income limitations and phase-out provisions
- Who benefits most from the expanded SALT deduction?
- State-specific considerations for SALT deductions
- Tax planning strategies for the new SALT cap
- The temporary nature of SALT relief
- How Harness can help
What is the SALT deduction and why it matters
The State and Local Tax deduction (SALT) offers taxpayers an effective way to reduce their federal tax burden by deducting certain taxes already paid at the state and local level. For those who itemize deductions rather than taking the standard deduction, this provision can deliver major tax savings.
The SALT deduction encompasses a number of tax types. Property taxes typically form the largest component for homeowners, while state income taxes often dominate for high-income earners. Taxpayers can choose between deducting state income taxes or sales taxes, but not both.
Not every tax payment qualifies for the SALT deduction, however. Federal income taxes, Social Security contributions, and transfer taxes on property sales all fall outside its scope. The same applies to service-related fees like water bills, garbage collection, or sewer charges, regardless of whether a local government provides these services or not.
Historical context of the SALT deduction cap
Prior to 2017, the SALT deduction offered virtually unlimited potential for tax savings. Residents of high-tax states could deduct their entire state and local tax payments, creating a significant offset against federal tax liability. This unlimited nature made SALT particularly valuable in states with extensive public services funded by higher tax rates.
In late 2017, the Tax Cuts and Jobs Act fundamentally changed federal tax deduction policy. Imposing a $10,000 cap on SALT deductions, the Act delivered a sharp blow to taxpayers in high-tax states like New York, California, and New Jersey, where state and local tax payments often exceeded this threshold several times over.
The impact proved dramatic. In 2017, nearly one-third of taxpayers itemized their deductions. By 2022, that number had plummeted to just 9.5%—a shift reflecting both the SALT cap’s constraining effect and the Act’s near-doubling of the standard deduction.
Several high-tax states mounted legal challenges against the cap, arguing it violated constitutional principles and unfairly targeted their residents. However, the courts stood firm, upholding the cap’s legitimacy despite intense opposition from affected states and their congressional representatives.
That said, the political pressure never ceased. Lawmakers from high-tax states persistently pushed for relief, with their efforts finally bearing fruit on July 15, 2025, and the passage of the One Big Beautiful Bill Act. This victory, though temporary, marked a significant shift in federal tax policy.
Key changes to the SALT deduction 2025
Starting in 2025, the State and Local Tax (SALT) deduction cap will rise to $40,000 for most taxpayers, with a $20,000 limit for married individuals filing separately. This change unlocks considerable tax-saving opportunities, particularly for homeowners in high-tax states facing major property tax bills.
However, the full benefit is not available to everyone. The increased deduction is subject to a phase-out for high earners. For individuals with a Modified Adjusted Gross Income (MAGI) over $500,000, the deduction begins to decrease, potentially limiting the available savings.
The One Big Beautiful Bill Act includes an automatic escalator provision for the cap. From 2026 through 2029, the limit increases by 1% annually, reaching approximately $41,624 in the final year of the expansion. This modest annual increase helps offset inflation’s impact on the deduction’s value.
Without further congressional action, however, the SALT deduction limit will revert to $10,000 for most filers and $5,000 for married filing separately on December 31, 2030.
In the meantime, business owners have received good news in the final version of the law. The pass-through entity tax (PTET) workaround, which many states implemented to help business owners bypass the SALT cap, remains intact.
Income limitations and phase-out provisions
The new $40,000 SALT cap comes with some important strings attached. As mentioned, once a taxpayer’s modified adjusted gross income (MAGI) crosses $500,000, the expanded deduction begins to shrink. For every dollar above this threshold, the available deduction drops by $0.30.
This phase-out creates a precise mathematical cliff. A taxpayer with MAGI of $600,000 or higher can only claim the standard $10,000 SALT deduction, regardless of their actual state and local tax payments. At this income level, the expanded cap has completely vanished.
Married taxpayers who file separately face even stricter limitations. Their phase-out begins at just $250,000 MAGI, potentially restricting the benefit for high-earning couples who might otherwise benefit from separate filing status.
These carefully calibrated income restrictions create a narrow window of opportunity. Taxpayers need to carefully balance themselves between having enough income to benefit from itemizing deductions, while staying below the phase-out thresholds, and maximizing their SALT benefits.
Who benefits most from the expanded SALT deduction?
Residents of high-tax states are the clear winners under the expanded SALT cap. New York, California, Connecticut, and New Jersey taxpayers—who routinely face substantial state income taxes and high property tax bills—stand to capture the largest share of benefits from this change.
The sweet spot for maximum benefit falls in the upper-middle-income range. Households with modified adjusted gross incomes between $200,000 and $500,000, particularly those carrying major property tax burdens or facing high state income taxes, will find the most value in the expanded cap.
Higher-earning households have consistently shown a greater likelihood of itemizing deductions, making them well-positioned to take advantage of the increased SALT cap. In contrast, the expanded cap offers limited value to low and middle-income households. These taxpayers typically find greater benefit in claiming the standard deduction, a pattern unlikely to change even with the higher SALT cap.
State-specific considerations for SALT deductions
Recent IRS data paints a clear picture of regional disparities in SALT benefits. Connecticut leads with average SALT deductions of $9,155, followed closely by New York at $9,085, New Jersey at $9,013, and California at $8,894. These numbers, recorded under the $10,000 cap, suggest residents in these states will quickly embrace the expanded $40,000 limit.
States lacking income taxes present an interesting case study. Places like Florida and Texas, while forgoing state income tax revenue, often impose higher property taxes or sales taxes. Their residents may still find substantial value in the increased SALT cap, primarily through property tax deductions.
The impact of the expanded cap varies dramatically based on geography. While taxpayers in high-tax jurisdictions may quickly bump against even the new $40,000 limit, residents of states with more modest tax burdens might never approach it.
Tax planning strategies for the new SALT cap
Effective tax planning needs to start with a fresh evaluation of the itemize-or-standardize question. The expanded SALT cap might tip the scales toward itemizing for many taxpayers who previously opted for the standard deduction, particularly when combined with other deductible expenses.
Bunching deductions is another useful strategy. To maximize the value of the expanded SALT cap, taxpayers can concentrate deductions in years when they’ll fall below the phase-out threshold by timing property tax payments, charitable contributions, and other deductible expenses.
When it comes to pass-through entity owners, they should take a close look at their state’s SALT cap workarounds. These entity-level tax elections can effectively bypass the individual SALT cap entirely, offering significant savings for qualified business owners.
For those near the phase-out threshold, income timing becomes vital. Strategic decisions about when to recognize income, or take distributions, could mean the difference between claiming the full $40,000 deduction or seeing it reduced by phase-out provisions.
Trust structures add another layer of difficulty to SALT planning. Trustees must carefully weigh how income retention affects the trust’s eligibility for the expanded deduction, potentially adjusting distribution strategies to optimize tax benefits.
The temporary nature of SALT relief
The five-year window of expanded SALT deductions, running from 2025 through 2029, is a calculated political compromise. This temporary relief period provides meaningful tax savings for affected taxpayers while addressing concerns about long-term fiscal impact.
Critics and supporters continue their debate about the provision’s merits. Proponents point to needed relief for taxpayers in high-tax jurisdictions, while skeptics highlight the benefits flowing primarily to wealthy taxpayers and express concern about deficit implications.
Congressional Budget Office projections put the entire tax package’s cost, including these SALT modifications, at $4.1 trillion in additional national debt between January 1, 2025 and December 31, 2034. It’s this dramatic fiscal impact that explains why the expanded cap includes both income limitations and a sunset provision.
How Harness can help
Making the most of 2025’s SALT deduction changes requires careful tax planning that accounts precisely for an individual’s circumstances. Income level, state of residence, and overall financial picture all play key roles in determining optimal strategies—the kind of tailored analysis that tax advisors from Harness specialize in.
At Harness, we connect individuals and businesses with tax experts who can help you optimize your SALT deductions, positioning you for long-term financial success, even during periods of major tax policy change. Get started with Harness, and benefit from tax-efficient strategies that are designed for you.
Disclaimer:
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