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The One Big Beautiful Bill Act (OBBBA) temporarily quadruples the state and local tax (SALT) deduction cap from $10,000 to $40,000 ($20,000 for single and separate filers) starting in 2025, with 1% annual increases through 2029. However, this relief is short-lived as the cap snaps back to $10,000 in 2030.
For high-income taxpayers, the deduction begins to phase out once modified adjusted gross income (MAGI) exceeds $500,000 and disappears entirely once MAGI reaches or exceeds $600,000 (MAGI thresholds are halved for single and separate filers). That phaseout can trigger a steep spike in your effective tax rate.
The SALT deduction is available only to taxpayers who itemize. Under the Tax Cuts and Jobs Act (TCJA), which nearly doubled the standard deduction and capped deductible SALT expenses at $10,000, the number of taxpayers who itemize dropped substantially. Now, under the OBBBA, the standard deduction is even higher — for 2025, it’s $15,750 for single and separate filers, $23,625 for heads of household filers, and $31,500 for joint filers.
However, the higher SALT cap might make it worthwhile for some taxpayers who have been claiming the standard deduction to start itemizing again. Consider, for example, a taxpayer who pays high state income tax. If that amount combined with other itemized deductions exceeds the applicable standard deduction, the taxpayer will save more by itemizing.
Deductible SALT expenses include property taxes and either income tax or sales tax, but not both. If you opt for sales tax rather than income tax, the IRS Sales Tax Deduction Calculator can estimate your deduction without tracking receipts.
The increased SALT cap could lead to major tax savings. For example, a single filer in the 35% bracket with $40,000 in SALT expenses and MAGI below the $500,000 threshold could save an additional $10,500 [35% × ($40,000 − $10,000)]. However, if a taxpayer’s MAGI is over the threshold by $60,000, the maximum SALT deduction drops to $22,000 [$40,000 – (30% x $60,000)], which is still more than double the original $10,000 limit.
To preserve your deduction, you may consider reducing MAGI through pre-tax 401(k), Health Savings Account (HSA), and/or self-employed retirement contributions. Conversely, you may also want to avoid moves that will raise MAGI like Roth Individual Retirement Account (IRA) conversions, large capital gains, or equity compensation.
Since the higher cap is temporary, it may be worth maximizing your SALT deduction every year it’s available. For example, if your MAGI is below the threshold for 2025, you may benefit from pre-paying your assessed property tax bill this year to boost your current deduction.
Note: Pass-through entity tax (PTET) elections remain a viable workaround. More than 36 states allow pass-through businesses to pay state income tax at the entity level, bypassing the SALT cap for owners. However, some PTET laws are set to expire after 2025, and renewal isn’t guaranteed.
SALT expenses aren’t allowed under the alternative minimum tax (AMT), which can result in a higher tax bill for some taxpayers. Since individuals must calculate their taxes under both the regular system and the AMT and pay the higher amount, large SALT deductions can unexpectedly push certain taxpayers into AMT territory.
The OBBBA makes the higher AMT exemption amounts permanent, but it also lowers the phaseout threshold for joint filers beginning in 2026. These changes could increase AMT exposure for high-income taxpayers, especially those with significant SALT deductions.
If your MAGI falls between $500,000 and $600,000 and you have high SALT expenses, your deduction may shrink as your income rises.
For example, with $600,000 of MAGI and $40,000 of SALT expenses, you may only be able to deduct $10,000 compared to the full $40,000 if your MAGI were $500,000. That $100,000 MAGI increase effectively raises your taxable income by $130,000, due to the reduced deduction.
The OBBBA’s changes to the SALT deduction cap, and their ripple effects across MAGI, itemization, PTETs, and AMT require a fresh look at your tax strategy. At Elliott Davis, we help high-net-worth individuals and business owners model the impact and optimize deductions.
Contact us today to chart the best course for reducing your tax liability during this four-year window.
The information provided in this communication is of a general nature and should not be considered professional advice. You should not act upon the information provided without obtaining specific professional advice. The information above is subject to change.
