The new State and Local Tax (SALT) Deduction provisions, which will come into effect in 2025, have had a major impact on the US tax system. In the past, the limit of deductions under the SALT was restricted to 10000 dollars, but currently it is 40000 dollars. This was modified through One Big Beautiful Bill Act of 2025. This law did not only entrench much of the provisions of the 2017 Tax Cuts and Jobs Act, but it also provided relief to taxpayers as well as confusion.
We should know more about what this new change is and who will be the benefactors of this change and whom it may back-fire.
What is the proposed new SALT deduction?
Based on the regulations that are currently applicable in the 2025 tax year-
New Limit: The highest limit of SALT deduction will be now 40,000.
On individual or joint filing couples: 40,000.
In case of Married – Filing Separately: 20,000.
1% Increase Each Year: This cap will grow at a rate of 1 per cent between 2027 and 2029.
Phasedown of the High-Income Households:
This cap of 40000 will be phased out on those with a Modified Adjusted Gross Income (MAGI) over 500,000. This cap will also go up by 1 percent per annum.
Status After 2030: This high limit will end in 2030 and go back to the previous limit of 10,000.
Who Will Benefit Most?
Although this transformation will be seen as a relief to all people, it will only benefit some groups.
1.Taxpayers in High-Tax States:
Those who will be the greatest beneficiaries are the residents of states with high state and local tax rates as seen in New York, California, New Jersey etc.
The people in these states used to easily cross the mark of 10,000 and now they are able to utilize the deduction up to 40,000.
2.Persons with Items: As Opposed to the Standard Deduction:
Following the Tax Cuts and Jobs Act of 2017, the standard deduction was greatly upgraded, and therefore, many taxpayers no longer take the itemized deduction.
However, now this higher SALT cap would only favor those who take the itemized deduction.
3.High-Income Families:
The Indians with higher incomes will enjoy the change the most.
But when they have a MAGI exceeding 500,000, this incentive will start to dwindle away.
SALT Torpedo – When Relief Backfires.
This new rule may turn into a SALT Torpedo to a very small group of very high-income earners according to a CNBC report.
This situation arises when:
The SALT deduction limit starts reducing as you make above 500,000 dollars.
At around 600,000, it is reduced to one-tenth, 10,000.
The marginal tax rate on taxpayers in this income bracket may be as high as 45.5.
In other words, even the ones that seem to be enjoying this relief may fall into a trap of taxation.
SALT Cap Workaround – Tax Plan on the Rich Still Persists.
Despite the government raising the SALT cap, most businesses have explored ways of evading this cap.
This is referred to as the SALT Cap Workaround-
a plan where part of the Pass-Through Entities (PTEs) will pay their state and local taxes based on the business entity level.
This gives the owners of small business or the LLC/Firm partners a chance to lower their tax bills by exploiting this loophole.
Long-Term Perspective
The extension of this SALT deduction is relieved until 2025, however, the deduction will expire in 2030.
This is just temporary- and political factors in the next several years would decide whether the cap will become permanent or lower once again.
According to some tax experts, this is a political balancing policy.
On the one hand, it is a relief to the higher-income classes, and on the other hand, the government still gets some extra income with the rule of phasedown.
What does this transformation hold in store to the common taxpayers?
This probably will not affect you much, unless you are a middle-class taxpayer or one who claims the standard deduction.
But if–
- you live in a high-tax state,
- pay high property taxes,
- or own multiple properties,
- this provision would be a significant tax break to you.
Conclusion
The proposal to raise the SALT deduction cap by 10000 to 40000 dollars in 2025 is a significant move in tax policy in US. Although this ruling is welcome in certain states and among high-income taxpayers, such clauses as the SALT Torpedo and phasedown make the situation even more complicated.
FAQs
1. What is the SALT deduction?
The SALT deduction allows taxpayers to deduct state and local taxes (SALT)—including property, income, and sales taxes—from their federal taxable income.
2. What was the previous SALT deduction limit?
Before the new change, the SALT deduction limit was $10,000, a cap introduced under the 2017 Tax Cuts and Jobs Act (TCJA).
3. What is the new SALT deduction limit under Trump’s proposal?
The new proposal raises the SALT deduction limit to $40,000, allowing taxpayers to deduct a much larger portion of their state and local taxes.
4. Who benefits the most from this higher SALT deduction?
High-income taxpayers living in high-tax states such as New York, California, New Jersey, and Connecticut are likely to benefit the most, as they pay more in state and property taxes.
5. How will this change affect middle-income families?
Middle-income families in low-tax states may see little to no impact, as their total state and local tax payments often fall below the previous $10,000 limit.