Salt Tax Update and Changes

For the 2025 tax year, the federal deduction limit for state and local taxes (SALT) has been temporarily increased to $40,000 for most filers, up from $10,000 previously.

This change was enacted by the “One Big Beautiful Bill Act” (OBBBA), signed into law in July 2025.

Salt Changes for 2025

• Deduction Limit: The cap for the SALT deduction is now $40,000 for single filers and married couples filing jointly, and $20,000 for married individuals filing separately.
• Income Phaseouts: The increased deduction amount is subject to an income-based phaseout. The benefit begins to shrink for taxpayers with a Modified Adjusted Gross Income (MAGI) over $500,000 ($250,000 for married couples filing separately).
• Minimum Deduction: Once MAGI reaches $600,000 or more (or $300,000 for those married filing separately), the deduction is capped at the original $10,000 limit.
• Temporary Provision: This expanded cap applies for tax years 2025 through 2029. The limit will increase by 1% annually during this period before reverting to the $10,000 cap for all taxpayers in 2030.
• Itemization Required: Taxpayers must itemize deductions on Schedule A of their federal tax return to claim the SALT deduction. The standard deduction has also increased for 2025 to $15,750 for single filers and $31,500 for married couples filing jointly, which may still be more beneficial for some taxpayers.

What is Included in the SALT Deduction?

The SALT deduction allows eligible taxpayers to deduct certain state and local taxes from their federal taxable income. These include:

• State and local income taxes (or general sales taxes in lieu of income taxes)
• Real property taxes
• Personal property taxes

Planning Considerations

Pass-Through Entity Tax (PTET) Workarounds: For business owners, state-level PTET elections remain a viable strategy to bypass the individual SALT cap, as these entity-level taxes are fully deductible at the federal level.

Income Management: Taxpayers with MAGI near the $500,000 threshold may consider strategies to manage income timing (e.g., deferring bonuses or managing capital gains) to stay within the eligibility range for the full or a larger deduction.