SALT Deduction Cap Increased: What the OBBB Act Means for You

What Is the SALT Deduction?

The State and Local Tax (SALT) deduction allows taxpayers who itemize to deduct certain state and local taxes from their federal taxable income. This includes state income taxes (or sales taxes), local income taxes, and property taxes. Since 2018, the SALT deduction has been capped at $10,000 ($5,000 for married filing separately).

The One Big Beautiful Bill Act (OBBB) Changes

The One Big Beautiful Bill Act, signed into law in 2025, significantly increases the SALT deduction cap for tax year 2025:

• New Cap: The SALT deduction cap is raised from $10,000 to $40,000 for most taxpayers.
• Married Filing Separately: For those filing separately, the cap increases from $5,000 to $20,000.
• Effective Date: This change applies to the 2025 tax year (returns filed in 2026).

Who Benefits Most?

This change primarily benefits taxpayers in high-tax states who itemize their deductions:

• High-Tax States: Residents of states like New York, New Jersey, California, Connecticut, and Illinois often pay significant state income and property taxes that previously exceeded the $10,000 cap.
• Homeowners: Those with substantial property tax bills will see greater benefit from the increased cap.
• High Earners: Taxpayers with higher incomes who pay more in state income taxes will benefit most from the increased deduction.

Tax Planning Opportunities

With the higher SALT cap, consider these planning strategies:

• Review Your Filing Method: If you previously took the standard deduction because the SALT cap limited your itemized deductions, recalculate whether itemizing now makes sense.
• Property Tax Timing: Consider the timing of property tax payments to maximize your deduction in the most beneficial tax year.

Important Limitations

Keep these limitations in mind:

• Itemizing Required: The SALT deduction is only available if you itemize deductions on Schedule A. It does not benefit those taking the standard deduction.
• AMT Considerations: The SALT deduction is not allowed for Alternative Minimum Tax (AMT) purposes. High-income taxpayers subject to AMT may see limited benefit.