What You Need to Know About the Updated SALT (State & Local Tax Laws)

For years, taxpayers in high-tax states have felt the pinch of the $10,000 cap on state and local tax (SALT) deductions. That cap, put in place in 2017, limited the amount you could deduct for property taxes and state income or sales taxes. With the passage of the One Big Beautiful Bill Act (OBBBA) in 2025, the cap has been raised to $40,000 per household. This change provides new opportunities for savings, especially for those who itemize deductions.

The New SALT Deduction Rules

Under the updated law, taxpayers who itemize can now deduct up to $40,000 in combined state and local taxes. Married couples filing separately can deduct up to $20,000. Deductible SALT includes property taxes and either state income taxes or sales taxes, but not both. Strategic tax planning and projection prior to tax season can help you determine which options will provide the maximum deductions based on your individual situation.

Keep in mind that these deductions are only available to those who itemize. If you typically claim the standard deduction, the higher SALT cap does not provide a direct benefit.

Income Limits and Phaseouts

The expanded deduction is not unlimited. For higher-income households, the benefit begins to phase out once modified adjusted gross income (MAGI) reaches $500,000 for joint filers or $250,000 for separate filers. As income rises above those thresholds, the available SALT deduction is gradually reduced. In some cases, high earners may see their benefit fall closer to the original $10,000 cap.

How Long Will the $40,000 Cap Last?

The increased SALT cap applies to tax years 2025 through 2029. During this period, the cap will adjust slightly for inflation each year. Unless Congress acts to extend it, the deduction limit will revert to $10,000 in 2030.

What This Means for Business Owners

Owners of S-Corporations, Partnerships, and certain LLCs may have another option: the pass-through entity tax (PTET) election. In states that allow it, the PTET lets the business pay state and local taxes at the entity level, which avoids the cap that applies to individual itemizers. This strategy can be complex, so it should only be pursued with guidance from a CPA who understands both the state and federal implications.

Key Takeaways for Taxpayers

• The SALT deduction cap has increased to $40,000 per household.
• You must itemize to claim this deduction; standard deduction filers are unaffected.
• The deduction phases out for higher-income households.
• The higher cap is temporary, running through 2029.
• Business owners may benefit from PTET elections in some states.

FAQs

Do I automatically get the $40,000 SALT deduction?

No. You must itemize deductions, and the amount you can claim depends on how much you paid in state and local taxes.

What counts toward the SALT deduction?

Property taxes, along with either state and local income taxes or sales taxes, qualify. You cannot deduct both income and sales taxes.

Is this change permanent?

No. The expanded cap expires after 2029 unless new legislation extends it.

Does this help if I usually take the standard deduction?

No. Only taxpayers who itemize will benefit from the increased cap.

Make Sense of the SALT Changes with a CPA

The updated SALT deduction rules could provide meaningful relief, especially for taxpayers in states with high property taxes or significant state income tax. At the same time, the rules are complicated by income limits and phaseouts.

At Myrick CPA, we work with clients across the country to navigate these changes with confidence. If you want to know how the new SALT deduction cap affects your situation, schedule a consultation. Planning ahead can make the difference between missing out and maximizing your benefit.