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The SALT deduction cap in 2025

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For eight years the deduction for state and local taxes was capped at $10,000. A 2025 law quadrupled it — temporarily, and with a catch for high earners. Here's what actually changed.

The state and local tax (SALT) deduction lets taxpayers who itemize on Schedule A deduct the state and local taxes they paid during the year — property tax plus either state income tax or state sales tax. It's one of the oldest deductions in the federal code, and for high-property-tax states it's one of the largest.

If you want to see your own deductible amount and the federal savings the cap costs you, the SALT deduction cap calculator runs the numbers. This guide explains the policy behind them — the 2025 change, who benefits, and the deadline that undoes it.

From $10,000 to $40,000

The 2017 Tax Cuts and Jobs Act capped the SALT deduction at $10,000 per return ($5,000 for married filing separately). For homeowners in New Jersey, New York, California, Connecticut, Illinois, and Massachusetts, that cap routinely stranded thousands of dollars of real tax payments as non-deductible.

The One Big Beautiful Bill Act (OBBB), signed into law on July 4, 2025, raised the cap to $40,000 per return ($20,000 MFS) starting with tax year 2025. The cap then rises 1% per year through 2029. The IRS reflects the current rules in Topic No. 503 and the Schedule A instructions; the Bipartisan Policy Center has a clear explainer of the change.

The catch: a phase-out for high incomes

The $40,000 cap is not flat. For taxpayers with modified adjusted gross income (MAGI) above $500,000 ($250,000 MFS), the cap is reduced by 30 cents for every dollar of income over the threshold — but it never falls below a guaranteed floor of $10,000 ($5,000 MFS). 

Effective cap = max($10,000, $40,000 − 30% × (MAGI − $500,000))

The band is narrow and steep. A joint filer at $560,000 MAGI has a $22,000 cap; by $600,000 the cap has collapsed all the way back to the $10,000 floor. In other words, the benefit of the higher cap is aimed squarely at the upper-middle class and phases out entirely for top earners, who are treated as they were under the old $10,000 limit.

Who this actually helps

Run the two ends of the spectrum:

  • A New Jersey couple, MAGI $225,000, paying $12,500 in property tax and $8,800 in state income tax. Total SALT of $21,300 was capped at $10,000 under TCJA; now it's fully deductible. At a 24% bracket, that's roughly $2,700 a year back in their pocket.
  • A California single filer, MAGI $580,000, paying $9,000 property + $35,000 state income tax. The phase-out drops the cap to $16,000, so $28,000 stays non-deductible — about $9,800 of lost federal savings at a 35% bracket. For them, OBBB changed almost nothing.
  • Most of the country. Outside high-tax states, typical SALT is well under even $10,000, so the cap was never the binding constraint and the change has no effect.

It only matters if you itemize

The SALT deduction is an itemized deduction — claim it only if your itemized total beats the standard deduction. For 2025 the standard deduction is $15,000 (single / MFS), $30,000 (married filing jointly), and $22,500 (head of household). With the cap raised to $40,000, more SALT is deductible, so itemizing now clears that bar for meaningfully more households than it did under the $10,000 cap — but the standard deduction still wins for many.

The pass-through workaround survived

Many states (NJ, NY, CT, MA, CA, CO, and others) enacted pass-through entity (PTE) tax regimes that let business owners pay state tax at the entity level, where it's fully deductible federally and bypasses the personal SALT cap entirely. OBBB did not restrict these workarounds — they remain a substantial benefit for S-corp and partnership owners (though not for W-2 wage earners). If you own a pass-through, this is worth a conversation with a CPA.

The 2030 cliff

The higher cap is temporary. Unless Congress acts again, on January 1, 2030 the cap reverts to a flat $10,000 ($5,000 MFS), with no phase-out and no floor — straight back to the TCJA rule. Treat the $40,000 era as a 2025–2029 window. For decisions with a long tail — buying in a high-tax state, timing charitable bunching, planning Roth conversions — build the 2030 reversion into the math rather than assuming the current cap is permanent.

This guide is general information, not tax advice. The interaction of the SALT cap with the AMT, the sales-tax election, and PTE elections can be involved; confirm your situation with a tax professional.

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