If you pay more than $10,000 in state and local taxes (SALT), a new provision in the One Big Beautiful Bill Act (OBBBA) could significantly reduce your 2025 federal income tax bill. However, income-based limits apply — and taking the right steps before year-end could help you maximize your deduction.
What Is the SALT Deduction?
SALT deductions include state and local property taxes (on homes, vehicles, and boats), and either state income or sales taxes—but not both.
Before 2018, these taxes were fully deductible for taxpayers who itemized deductions on their federal returns. This was especially beneficial for those living in high-tax states or owning multiple properties.
However, the Tax Cuts and Jobs Act (TCJA) of 2018 capped the SALT deduction at $10,000 ($5,000 for married couples filing separately). This cap was originally set to expire after 2025.
The New SALT Deduction Cap for 2025
Instead of allowing the $10,000 limit to expire or making it permanent, the OBBBA temporarily quadruples the cap.
Starting in 2025, taxpayers can deduct up to:
- $40,000 for most filers
- $20,000 for married couples filing separately
This limit will increase by 1% per year until 2029. Then, in 2030, the $10,000 cap returns. Example
A single taxpayer in the 35% tax bracket with $40,000 in SALT expenses could save an additional:
$10,500 in federal taxes = 35% × ($40,000 − $10,000)
That’s a major difference compared with the previous $10,000 cap.
Income-Based Reduction Limits
While the increased SALT deduction is generous, it begins to phase out at higher income levels.
For 2025, the deduction decreases by 30% of the amount by which your modified adjusted gross income (MAGI) exceeds $500,000. Once your MAGI reaches $600,000, the deduction cap returns to $10,000. (These limits are halved for separate filers.)
The threshold increases by 1% per year through 2029.
Example of a Reduced Deduction
If your MAGI is $550,000, that’s $50,000 over the 2025 limit.
Your SALT deduction is reduced by 30% × $50,000 = $15,000.
This leaves a maximum deduction of $25,000, still more than double what you could claim under the $10,000 cap.
Tax savings: 35% × ($25,000 − $10,000) = $5,250.
Should You Itemize or Take the Standard Deduction?
You can claim the SALT deduction only if you itemize.
Because the TCJA nearly doubled the standard deduction, fewer taxpayers have found it beneficial to itemize.
Under the OBBBA, the 2025 standard deduction rises to:
- $15,750 for single or separate filers
- $23,625 for head of household
- $31,500 for married couples filing jointly
If your SALT + other itemized deductions (like mortgage interest, medical expenses, and charitable donations) exceed the standard deduction, itemizing could reduce your taxes.
Year-End SALT Planning Strategies
Before the end of 2025, consider these tax-smart moves to make the most of the new SALT deduction:
1. Reduce Your MAGI
If your income is near or above the reduction threshold:
- Contribute more to pre-tax retirement accounts (401(k), 403(b), traditional IRA).
- Maximize Health Savings Account (HSA) contributions.
- Avoid activities that raise MAGI, such as Roth conversions, large capital gains, or unnecessary distributions.
2. Accelerate Property Tax Payments
If your MAGI is below the reduction threshold and your SALT expenses are under $40,000, consider prepaying your 2026 property taxes in 2025.
Just make sure your property tax has been assessed—you can’t deduct estimated prepayments.
Don’t Forget the AMT
Keep in mind that SALT deductions aren’t allowed under the Alternative Minimum Tax (AMT).
A large deduction could unintentionally trigger the AMT, reducing your overall benefit.
Plan Carefully for Maximum Savings
The temporary increase in the SALT deduction cap presents a valuable tax-saving opportunity. But smart planning is essential to take full advantage.
Consult your tax advisor before year-end to determine the best strategies for your income level and filing status.
© 2025