The State and Local Tax (SALT) deduction has long been a focal point for taxpayers in high-tax states. Starting in 2025, a landmark change to federal tax law significantly expands this benefit. This guide covers everything you need to know about the new limits, phaseouts, and how to maximize your tax savings.
What Is the SALT Deduction?
The SALT deduction allows taxpayers who itemize on their federal returns to subtract certain taxes paid to state and local governments from their federal taxable income. This effectively prevents double taxation on the same income.
Eligible taxes include:
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State and local income taxes (or sales tax)
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Real estate property taxes
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Personal property taxes
The 2025 SALT Cap Increase: From $10,000 to $40,000
The most significant change for the 2025 tax year is the quadrupling of the deduction limit. Under the One Big Beautiful Bill Act (OBBBA), the previous $10,000 limit—established by the Tax Cuts and Jobs Act of 2017—has been drastically increased.
New SALT Limits (2025–2029):
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$40,000: Maximum deduction for most filers (Single, Head of Household, Married Filing Jointly).
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$20,000: Maximum deduction for those Married Filing Separately.
Note: This higher cap is temporary and is currently scheduled to revert to the $10,000 limit in 2030 unless further legislation is passed.
How the New SALT Deduction Works in 2025
To qualify for the increased deduction, you must itemize your deductions on IRS Schedule A. If your total itemized deductions (including mortgage interest and charitable contributions) exceed the standard deduction, the new $40,000 cap offers a substantial tax-saving opportunity.
1. High-Income Phaseout Rules
The benefit is income-sensitive. If your Modified Adjusted Gross Income (MAGI) exceeds $500,000 ($250,000 for MFS), the deduction begins to phase down.
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The Calculation: Roughly 30% of income exceeding the threshold reduces your available SALT limit.
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The Floor: Regardless of income, the deduction will not drop below the original $10,000 level.
2. Who Benefits Most?
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Homeowners in High-Tax States: Residents of New York, California, New Jersey, and Illinois often pay well over $10,000 in combined property and income taxes.
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Active Itemizers: If you already itemize due to high mortgage interest or significant charitable giving, this change directly lowers your taxable income.
Example: Tax Savings Comparison
To illustrate the impact, consider a married couple filing jointly with a MAGI of $450,000 and $35,000 in total SALT paid.
| Tax Year | SALT Cap | Deductible Amount |
| 2024 | $10,000 | $10,000 |
| 2025 | $40,000 | $35,000 |
Result: In 2025, this couple can deduct an additional $25,000 compared to previous years, significantly lowering their federal tax bill.
Strategic Planning for 2025
The jump from a $10,000 to a $40,000 cap is one of the most impactful tax shifts in recent years. Because this benefit is temporary and subject to income thresholds, proactive tax planning is essential.
