SALT Deduction Expansion: What It Means for 2025–2029

Key Points:

• The SALT deduction cap will temporarily increase to $40,000 starting in 2025, creating short-term tax planning opportunities for high earners in high-tax states.
• Taxpayers with income between $500,000 and $600,000 may see reduced or no benefit due to phaseouts, making proactive income and deduction strategies essential.
• Business owners can bypass the SALT cap entirely by using Passthrough Entity Tax (PTET) elections, which remain fully deductible under federal law.

For clients who itemize and live in high-tax states, the long-standing $10,000 cap on state and local tax (SALT) deductions has been a significant constraint. That’s about to change—temporarily. The newly enacted One Big Beautiful Bill Act (OBBBA) increases the SALT cap to $40,000 beginning in 2025, with modest increases through 2029.

This expanded window offers strategic opportunities, but the benefit is not automatic. Whether or not you qualify depends on your income, how your assets are held, and in some cases, whether you’re making the most of entity-level deductions.

Here’s what you need to know—and what you should do next.

What Is the New SALT Deduction Cap?

Beginning in 2025, the federal SALT deduction cap will increase to $40,000 for most individual filers. That amount will rise slightly, around 1%, yearly until it returns to $10,000 in 2030 unless Congress acts again. This change could significantly increase federal deductions if you typically pay more than $10,000 in state income or property taxes.

However, this expanded benefit only applies if you itemize deductions. If you currently take the standard deduction, the change may not affect your tax return unless your overall deductions exceed the new threshold.

Income Limits Can Reduce or Eliminate the Benefit

One of the most essential parts of this legislation is the phaseout provision based on modified adjusted gross income (MAGI). If your MAGI exceeds $500,000, the deduction begins to shrink. Once income reaches $600,000, it’s capped again at $10,000—regardless of your actual SALT payments.

This creates a narrow band of taxpayers who can fully exploit the expanded cap. Planning ahead is critical if you expect your income to fall near or above this range. There may be ways to manage income timing or offset with other deductions to remain within the eligibility window.

Planning Considerations for Trusts

Trusts are also subject to the expanded SALT deduction and the same income-based phaseouts. This is especially relevant for non-grantor trusts that retain income and file their returns.

Because trusts hit the top income tax bracket at relatively low thresholds, even modest gains or retained income can quickly reduce or eliminate the benefit of the SALT expansion. Trustees may want to evaluate whether strategic distributions to beneficiaries can lower MAGI and preserve a greater deduction, without compromising the trust’s objectives or obligations.

If you’re involved in managing a trust, these years may present new tax planning opportunities, but they must be evaluated case by case.

Passthrough Entity Tax (PTET) Elections Preserve Full Deductibility

For business owners, the most powerful SALT strategy may not be the expanded cap at all—it’s the passthrough entity tax election.

PTET allows partnerships and S corporations to pay state taxes at the entity level in many states. These taxes are then fully deductible on the federal return, bypassing the SALT cap entirely. Owners typically receive a credit or adjustment on their state return.

Notably, the OBBBA preserves this workaround, meaning that even those phased out of the expanded individual deduction can still benefit if their business is structured appropriately. If you own an eligible business, it’s worth reviewing whether PTET is available in your state and how it fits into your broader tax strategy.

What Should You Be Doing Right Now?

The SALT deduction expansion presents a unique, time-limited opportunity. But without proactive planning, many taxpayers could miss out, or assume they’ll benefit when they won’t. Here are the steps we recommend for clients now:

• Review your 2024 return to estimate whether you will likely itemize in 2025 under the new cap.
• Project your income for the next few years to determine if phaseouts will apply.
• Evaluate timing strategies, such as paying property taxes or charitable contributions in high-deduction years.
• For trusts, assess whether income distributions could improve the deduction outcome.
• Business owners, consider whether a PTET election is available in your state, and if it aligns with your tax goals.

Make the Most of the SALT Expansion

The SALT expansion is more than a tax code adjustment—it’s a strategic opportunity for individuals, families, and businesses. But it comes with limitations and an expiration date.

Consult your tax advisor now to determine whether you qualify, how to plan around the phaseouts, and how to align these changes with your overall tax strategy. Taking action before 2025 could be the difference between realizing meaningful savings and missing the opportunity altogether.

Frequently Asked Questions (FAQ)

1. I want to know what the SALT deduction is—how does the 2025 cap affect me?
   The SALT deduction allows you to write off certain state and local taxes on your federal return. Starting in 2025, the cap will rise to $40,000, but you must itemize deductions and stay within income limits to benefit.
2. What expenses are included in SALT?
   SALT includes state income taxes, local property taxes, and some sales taxes. These expenses are deductible only if you itemize and qualify under the new expanded cap rules.
3. Can I benefit from SALT deductions in California?
   Yes, taxpayers in high-tax states like California stand to gain the most—if they itemize and fall below the $600,000 MAGI threshold. Additionally, California allows PTET elections for certain businesses, which can further reduce tax liability.
4. How does the SALT phase-out work?
   If your modified adjusted gross income (MAGI) exceeds $500,000, your SALT deduction begins to phase out. At $600,000 or more, you’re limited to just $10,000, regardless of your actual state and local tax payments.

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