The New SALT Deduction Cap

What You Need to Know

The One Big Beautiful Bill Act (OBBBA) has introduced major changes to the long-debated State and Local Tax (SALT) deduction cap. Why does SALT matter? Because SALT is one of the key deductions that allows taxpayers to itemize beyond the standard deduction. For taxpayers in high-tax states, this is a big deal.

Here’s a breakdown of what’s changing, how it works, and why it matters.

A Higher Cap — But Only Temporarily

Beginning with the 2025 tax year, the SALT deduction cap will increase from the current $10,000 to $40,000 for joint filers. Married taxpayers filing separately will see their cap rise to $20,000.

This higher cap is designed to provide relief to middle- and upper-middle-income taxpayers in high-tax states. However, it is temporary.

What Happens After 2025?

From 2026 through 2029, the deduction cap won’t remain static. Instead, it increases by 1% per year. So, the $40,000 cap in 2025 becomes $40,400 in 2026, and so on.

The income thresholds that determine whether the deduction begins phasing out will also rise by 1% annually during this period.

Income-Based Phaseouts

The new higher cap isn’t available to everyone depending on their income:

• For joint filers, if Modified Adjusted Gross Income (MAGI) exceeds $500,000, the deduction begins to shrink.

• For separate filers, the threshold is $250,000.

• The deduction is reduced by 30% of the amount of income above the threshold.

Example 1:

• Joint filer with $550,000 MAGI → exceeds threshold by $50,000.

• Deduction reduced by $15,000 (30% × $50,000).

• Result: SALT deduction drops from $40,000 to $25,000.

Example 2:

• Joint filer with $750,000 MAGI → excess is large enough to cut the deduction more than $40,000.

• Deduction defaults to the minimum $10,000 floor.

Reversion in 2030

The expanded cap is a temporary measure. Starting in 2030, the SALT deduction cap returns to $10,000, unless Congress extends or revises the rules again.

What About Business Owners?

One important note: the OBBBA does not affect pass-through entity tax (PTET) workarounds. Many business owners already use PTET elections to deduct state and local taxes at the entity level, bypassing the SALT cap. This strategy remains fully available.

SALT Deduction Cap: Before vs. After OBBBA

Feature	Before OBBBA	Under OBBBA (2025–2029)
Deduction Cap	$10,000 for all filers (since 2018)	$40,000 (joint), $20,000 (separate) in 2025; increases 1% annually 2026–2029
Phaseouts	None	Begins at $500,000 MAGI (joint) / $250,000 (separate); deduction reduced by 30% of excess income
Minimum Deduction	$10,000	$10,000 (even if phaseout eliminates higher cap)
Reversion	Permanent $10,000 cap (until changed by Congress)	Returns to $10,000 starting in 2030
PTET Workarounds	Allowed	Still allowed; unaffected by OBBBA

Why This Matters

• Relief for many taxpayers: Families in high-tax states could see thousands in savings from the higher cap.

• Less benefit for high earners: Those with incomes above the thresholds will see their deductions phased down or eliminated.

• Planning opportunities: Taxpayers near the phaseout thresholds may benefit from strategies like timing income, accelerating deductions, or charitable contributions to maximize the higher cap while it lasts.

Final Thoughts

The OBBBA’s SALT cap increase offers welcome — though temporary — relief. It will ease the burden for many taxpayers in high-tax states, but the income-based phaseouts mean not everyone will benefit equally. With the reversion to a $10,000 cap set for 2030, taxpayers and advisors alike will need to keep a close eye on planning opportunities over the next few years.