The New SALT Deduction Under the One Big Beautiful Bill

What High-Income Taxpayers and Property Owners Need to Know

With the signing of the One Big Beautiful Bill Act (OBBBA) on July 4, 2025, taxpayers in high-income and high-tax states have something to celebrate: a long-awaited expansion of the State and Local Tax (SALT) deduction. Here's what you need to know about the changes, who they benefit, and how to start planning.

What Changed?

Increased Deduction Cap: Beginning with the 2025 tax year, the SALT deduction cap has been increased to $40,000 for all individual taxpayers, including both single and married filing jointly. This is a significant boost from the previous $10,000 limit imposed by the 2017 Tax Cuts and Jobs Act (TCJA).

Annual Indexing and Sunset Provision: The $40,000 cap will be indexed for inflation by 1% per year through 2029, after which it is scheduled to revert to the original $10,000 cap unless further legislation is passed.

Income-Based Phase-Out: Taxpayers with modified adjusted gross income (MAGI) over certain thresholds will see their enhanced SALT deduction gradually phased out:

• For both single and married filing jointly taxpayers, the phase-out begins at $500,000 MAGI.

• The deduction is reduced by 30% of the amount exceeding the threshold.

• The deduction, however, will never fall below $10,000, regardless of income.

Indexed Thresholds: The $500,000 MAGI threshold is also indexed for inflation through 2029.

Who Benefits?

These changes primarily benefit:

• Homeowners in high-tax states such as California, New York, New Jersey, and Texas who regularly pay over $10,000 in combined state income and property taxes.

• Taxpayers earning under $500,000, who will qualify for the full deduction with no phase-out.

• Itemizers, since SALT deductions are only available to those who itemize instead of taking the standard deduction.

For those above the phase-out thresholds, the benefit is reduced but still meaningful—especially in early years before inflation erodes the value.

Example: How the Phase-Out Works

Let’s say a single filer has $525,000 in MAGI and $30,000 in total SALT payments in 2025:

• Their income exceeds the threshold by $25,000.

• The deduction is reduced by 30% of that amount, or $7,500.

• Their available SALT deduction becomes $40,000 – $7,500 = $32,500.

Even at higher income levels, the deduction remains more generous than the prior $10,000 cap.

Considerations and Limitations

Itemizing Still Required: The SALT deduction only benefits taxpayers who itemize deductions. The 2025 standard deduction is estimated to be over $31,000 for joint filers and around $15,500 for single filers, so the total of all itemized deductions must exceed those amounts to realize any benefit.

Temporary Nature of the Provision: Unless extended by Congress, this expanded deduction expires after 2029, returning to a flat $10,000 cap in 2030. Taxpayers should plan now for how to maximize deductions in the short term and prepare for future limitations.

Top-Bracket Deduction Limitations: For taxpayers in the highest marginal brackets, itemized deductions (including SALT) are subject to a new limitation that reduces their effectiveness—potentially making it worth only 32 cents on the dollar in federal tax savings. Strategic planning will be essential.

Planning Strategies

Run Projections: Clients should run multi-year projections to determine if itemizing with the expanded SALT cap provides greater benefit than the standard deduction—especially when combined with mortgage interest and charitable contributions.

Consider Timing Strategies: For those near the MAGI phase-out thresholds, consider income deferral strategies or accelerating deductions (such as prepaying property taxes) to stay below the thresholds and maximize the available SALT deduction.

Prepare for 2030: The return to the $10,000 limit in 2030 will change the deduction landscape significantly. Business owners and real estate investors may want to explore entity-level SALT workaround strategies in the future.

Final Thoughts from Shifflett & Philips

The expanded SALT deduction under the One Big Beautiful Bill is a major opportunity for many of our clients—but it’s also temporary and income-sensitive. If you live in a high-tax state or pay substantial property taxes, now is the time to review your tax plan and make the most of the available deduction.

Our team is ready to help you evaluate your situation, project tax savings, and implement strategies that fit your goals. Let’s talk before year-end to make sure you’re positioned to benefit fully from this and other tax law changes in 2025.