The state and local tax deduction is a federal income tax provision that allows taxpayers who itemize deductions to subtract certain state and local taxes — chiefly income, property and sales taxes — from their federal taxable income. Before 2018, there was no formal cap on the total amount of SALT that taxpayers could deduct, and many high-income taxpayers in states with high income and property taxes could reduce their federal tax bills significantly by itemizing SALT.
The 2017 Tax Cuts and Jobs Act: The SALT cap begins
In December 2017, Congress passed the Tax Cuts and Jobs Act, a major overhaul of the U.S. tax code. Among its many provisions was a cap on the SALT deduction of $10,000 for most filers ($5,000 if married filing separately) on the total amount of state and local taxes that could be deducted each year.
This $10,000 cap went into effect for tax year 2018 and was initially set to expire after tax year 2025, along with other individual tax cuts under the TCJA. The result was a sharp reduction in the number of taxpayers who itemized and deducted SALT; congress.gov data shows the proportion of returns claiming any SALT deduction fell from about 31% in 2017 to 9% in 2022.
Limiting SALT deductions was particularly controversial in high-tax states like California, where many taxpayers regularly paid more than $10,000 in combined state income and property taxes.
The One Big Beautiful Bill Act : SALT changes in 2025
On July 4, 2025, President Trump signed into law the OBBBA, a sweeping tax and budget package that made several changes to federal tax policy — including significant modifications to the SALT deduction. Three major changes beginning in tax year 2025 are as follows.
Increased SALT deduction cap (2025-2029)
The SALT deduction cap is raised from $10,000 to $40,000 for tax years beginning in 2025 (with a corresponding $20,000 cap for married taxpayers filing separately). The cap increases slightly — by about 1% each year — through 2029. This effectively quadruples the amount of SALT that qualifying taxpayers can deduct for several years.
SALT deduction cap phaseout for higher earners
Taxpayers with a modified adjusted gross income above $500,000 begin to see the expanded SALT deduction cap phased down at a 30% rate for income above that threshold. The phaseout increases the effective SALT limit down toward $10,000 for the highest earners, meaning those well above the phaseout range could effectively still be limited to the old $10,000 cap. This phaseout threshold and the cap itself will be indexed for inflation beginning in 2026.
Reversion to the old SALT deduction cap in 2030
The SALT deduction cap is scheduled to revert back to the $10,000 limit beginning in 2030 unless Congress acts again. The OBBBA’s SALT changes represent a temporary and targeted expansion of the deduction, reflecting a compromise between critics of the original $10,000 cap and those wary of unlimited deductions.
As you approach the 2025 tax season, here are a few things you may want to ask your tax preparer regarding SALT deduction changes:
• Does my itemized deduction exceed the standard deduction? If not, is there opportunity to bunch deductions to help maximize itemization benefits for 2025?
• Is there opportunity to adjust the payment of estimated payments or property taxes to help maximize this deduction in future years?
• Are there other deductions or credits I should be planning for alongside SALT?
• For those earning more than $500,000 annually: Are there legitimate adjustments I can make to keep my MAGI below phaseout thresholds?
• For those with pass-through entities: Should my business elect pass-through entity tax in California to help reduce federal taxable income? How does PTET affect my individual SALT deduction and overall tax picture?
Taxpayers — particularly those in high-tax states or those with income approaching phaseout thresholds — should consult a qualified tax professional to understand how these shifting rules affect their unique situation and make sure they’re maximizing this expanded deduction.
Zach Harney is a Wealth Manager at Creative Planning. He welcomes questions you may have concerning investments, taxes, retirement or estate planning. Send your questions to: Zach Harney, 2340 Garden Road, Suite 202, Monterey, CA, 93940. Or you can email zach.harney@creativeplanning.com. This commentary is provided for general information purposes only, should not be construed as investment, tax or legal advice, and does not constitute an attorney/client relationship. Past performance of any market results is no assurance of future performance. The information contained herein has been obtained from sources deemed reliable but is not guaranteed.
