SALT Deduction Soars: What the $40,000 Cap Means for Your 2025 Taxes
Homeowners and taxpayers in high-tax states are poised for significant tax relief in 2025 as the state and local tax (SALT) deduction cap quadruples to $40,000. This substantial increase from the previous $10,000 limit marks a major shift for many, particularly those who itemize their deductions.
Understanding the SALT Deduction: A Primer
The SALT deduction allows taxpayers who itemize to subtract certain state and local taxes from their federal taxable income, preventing double taxation. Eligible taxes include state and local income taxes (or sales tax), real estate property taxes, and personal property taxes. However, claiming this deduction requires itemizing – those who seize the standard deduction won’t benefit.
What Taxes Qualify for the SALT Deduction?
- State and local income taxes: Includes payroll withholdings or quarterly payments.
- Property taxes: Taxes on your primary home, second home, or land.
- Local taxes: City income taxes or personal property taxes, like vehicle taxes.
- Sales taxes (optional): Available if your state has no income tax, or for large purchases.
The Impact of the One Substantial Attractive Bill Act
The change, enacted through the One Big Beautiful Bill Act (OBBBA) in July 2025, dramatically alters the landscape for taxpayers in states with high tax burdens. Previously, many moderate-income homeowners didn’t have enough deductions to justify itemizing, rendering their property taxes largely untaxed at the federal level. Higher earners often hit the $10,000 cap with state income taxes alone.
Now, a homeowner paying $15,000 in state income tax and $12,000 in property tax can deduct the full $27,000. For someone in the 24% tax bracket, this could translate to substantial tax savings.
Who Benefits Most from the Increased SALT Cap?
While anyone who itemizes can claim the deduction, the biggest beneficiaries are typically middle- to high-income households in states with high income taxes. Analysis from the Tax Foundation indicates that homeowners in states like California, Latest York, and Connecticut stand to gain the most, as combined state and local taxes often exceeded the old $10,000 cap.
Families in the $400,000 to $500,000 income range are likely to see the largest relative reductions in their federal tax bills, according to the Committee for a Responsible Federal Budget.
The Income Phase-Out: A $500,000 Threshold
To prevent excessive benefits for the wealthiest taxpayers, the OBBB includes a phase-out provision. For those with a Modified Adjusted Gross Income (MAGI) exceeding $500,000 ($250,500 for married filing separately), the deduction begins to decrease. However, it will never fall below $10,000.
Even high earners still receive some benefit. For example, a couple earning $600,000 could still pocket roughly $7,000 from the SALT deduction, while those earning $750,000 could still see around $1,750 in tax savings.
What Isn’t Deductible?
It’s important to understand what doesn’t qualify for the SALT deduction:
- Federal taxes
- Fees and assessments (HOA dues, water/sewer charges)
- Fines and penalties
- Foreign taxes (may qualify for the Foreign Tax Credit instead)
Looking Ahead: The 2030 Sunset
The expanded $40,000 cap is currently scheduled to remain in place through the 2029 tax year, with annual inflation adjustments. Unless Congress takes action, the limit is set to revert to $10,000 in 2030.
How to Claim the SALT Deduction
To claim the deduction, total your property taxes, state and local income (or sales) taxes, and personal property taxes on Schedule A. Your W-2 and Form 1098 (from your mortgage lender) will provide much of the necessary information. If you live in a state with no income tax, the IRS Sales Tax Deduction Calculator can help estimate your deduction.
Frequently Asked Questions (FAQ)
- What is the SALT deduction?
- It’s a tax break allowing you to deduct state and local taxes from your federal income tax, but only if you itemize.
- What is the SALT cap for 2025?
- For most filers, the cap is $40,000. It’s $20,000 for those married filing separately.
- Does the SALT deduction apply to sales tax?
- Yes, you can deduct sales tax instead of income tax if your state has no income tax, or if you made large purchases.
- What happens to the SALT cap in 2030?
- Unless Congress acts, it reverts to $10,000.
Pro Tip: Keep organized records of your property tax bills and other relevant tax documents throughout the year to simplify the filing process.
Stay informed about tax law changes and consult with a tax professional to ensure you’re maximizing your deductions and minimizing your tax liability.
