Written by Andrew Sonnier
The One Big Beautiful Bill Act (OBBBA) was signed into law by President Donald Trump in July of 2025. The bill presents significant changes to the tax code in the United States. Among these provisions is the increase in the State and Local Tax (SALT) deduction cap. This article explains what the new SALT cap means, who benefits, and what steps clients should take to optimize their tax strategy under the updated rules.
There was a strict $10,000 cap on SALT deductions for taxpayers who used the itemized deductions under the Tax Cuts and Jobs Act of 2017 (Source: Notice 2018-54). Under Section 70120 of the OBBBA, the SALT cap has been increased to $40,000 (for married filing jointly) for tax years 2025 to 2029 (or $20,000 for married filing separately) (Source: IR-2025). In tax year 2030, the SALT cap of $40,000 will decrease back to $10,000. However, there is a phaseout subject to an income-based phaseout dependent on the taxpayers Modified Adjusted Gros Income (MAGI) over $500,000 ($250,000 for separate filers) (Source: IR-2025). Once a taxpayer’s MAGI is $600,000, the SALT cap phases back down to $10,000 (Source: IR-2025).
For the taxpayers who itemize, this temporary increase in the SALT cap can offer significant tax savings. For example, a couple with income under $500,000 and $30,000 in state and local taxes can now deduct the full $30,000 compared to just $10,000 under the prior law. However, high-income taxpayers need to be aware when their income is above $500,000 because the deduction phases out rather quickly. For high-income earners earning $600,000 can see their SALT cap reduced back to $10,000 because there is a phaseout that happens between $500,000-$600,000. This creates planning challenges and opportunities for tax professionals. Strategies to help conserve the SALT Cap can be boosting your retirement contributions, accelerating deductible expenses, and leveraging pass-through entity tax elections. For homeowners, the higher SALT cap can be utilized to offset property tax liability, making itemizing more appealing during the 2025-2029 window. Businesses like partnerships and S corporations are still allowed to deduct state taxes at the entity level.
Taxpayers should review their estimated income and state tax liabilities for the year now. High income earners, business owners, or other individuals who are curious about what actions can be taken to ensure the max utilization of the new SALT cap can contact our team today to discuss the guidance needed to reach your goals/needs.
Staying informed about tax law changes is essential to protecting your financial interests. The OBBBA’s SALT cap increase offers opportunities—but also complexities. Thank you for trusting us with your planning needs. Reach out anytime for guidance tailored to your unique situation.
References
- (Source: Notice 2018-54) https://www.irs.gov/pub/irs-drop/n-18-54.pdf
- (Source: IR-2025) https://www.congress.gov/bill/119th-congress/house-bill/1/text