What the New SALT Cap Means for You

With the signing of the One Big Beautiful Bill Act (OBBBA) on July 4, 2025, Congress enacted some welcome changes to the State and Local Tax (SALT) deduction—changes that could mean real tax savings for many of our clients.

What Changed?
Starting with your 2025 tax return, the SALT deduction cap rises from the current $10,000 to as much as $40,000—but only through 2029. From 2026 through 2029, the cap will be adjusted annually for inflation by 1 percent.

Are There Limits?
Yes—if your income exceeds certain thresholds, your deduction may be phased down. For joint filers, the cap begins to phase out at $500,000 Modified Adjusted Gross Income (MAGI), reducing the benefit at a rate of 30 cents for every dollar above that threshold—though the deduction won’t fall below the original $10,000 threshold. The threshold and cap both gradually rise over time before resetting to $10,000 in 2030.

Who Gains the Most?
Upper-middle-income households in high-tax states—especially those who routinely itemize deductions—are likely to benefit the most. For many with substantial state income taxes and property taxes, this change could mean significant additional savings.

What This Means for You:

• Taxpayers will want to revisit whether to itemize deductions if they have been taking the standard deduction.
• If your income is near the phase-out threshold, strategically planning the timing of income and deduction items could help you take full advantage of the higher cap.
• Keep in mind that these changes are temporary, lasting only through 2029. Without further legislative action, the deduction will return to the $10,000 cap in 2030.

Questions?
Tax planning opportunities like this don’t come along every year—and they don’t last forever. If you’d like to understand exactly how the updated SALT cap affects your specific situation, or explore whether adjustments in your tax strategy could increase your savings, our team at DWD CPAs & Advisors is here to help.