How the New SALT Cap Affects Income Taxes
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Collapse ▲H.R.1, the “Big, Beautiful Bill” that was signed into law on July 4, 2025, increased the federal income tax deduction associated with how much a taxpayer paid for their state and local property taxes (often referred to collectively as “SALT”). Prior to the latest legislative changes, this deduction was capped at $10,000 per household. Under the new law, the SALT cap is now increased to $40,000 for the 2025 tax year for most taxpayers.
Since the SALT deduction applies to ‘households,’ married couples who file jointly and unmarried individuals will each receive the same deduction (i.e., up to $40,000) and receive equal treatment in the phaseout rules described below. For married couples who file separately, each spouse will receive a separate SALT deduction of $20,000.
There is a phaseout that occurs for households with a modified adjusted gross income (MAGI) of over $500,000. As a refresher, modified adjusted gross income is a calculation of your adjusted gross income (total income minus above the line deductions) plus the applicable amount of the SALT deduction. For households with a MAGI over $500,000, the SALT deduction will be reduced by 30% of the amount of the household’s excessive income over $500,000.
For example, imagine a household that has a MAGI of $560,000, which is $60,000 in excess of $500,000. Applying the 30% phaseout, the household’s SALT deduction will be reduced by $18,000 (i.e., 30% of $60,000) from $40,000 to $22,000.
Of relevant note, the SALT deduction cannot be lowered further than $10,000 – so all taxpayers, regardless of MAGI, are eligible for a SALT deduction of at least $10,000.
The SALT cap will fluctuate in two key areas – the cap itself and the income level where the phaseout starts – from now until 2030. In 2030, the SALT cap will revert back to $10,000 per household with no phaseouts based on income.
SALT Cap for Next 5 Years
- 2025: $40,000
- 2026: $40,400 (1% increase)
- 2027: $40,804 (1% increase)
- 2028: $41,212.03 (1% increase)
- 2029: $41,624.16 (1% increase)
- 2030: $10,000 (expiration of H.R.1’s increase on SALT cap)
Income Threshold for Phaseout of Increased SALT Deduction for Next 5 Years
- 2025: $500,000
- 2026: $500,500 (1% increase)
- 2027: $505,505 (1% increase)
- 2028: $510,560.05 (1% increase)
- 2029: $515,665.65 (1% increase)
- 2030: No more phaseouts due to end of increased SALT cap
The SALT deduction is a ‘below-the-line’ deduction, meaning that taxpayers who take the SALT deduction (and other below-the-line-deductions if applicable) are foregoing the standard deduction through a process commonly referred to as ‘itemizing deductions.’ The SALT cap, which was instituted alongside an increased standard deduction in the 2017 Tax Cuts and Jobs Act, is largely attributed with the increase in taxpayers who take the standard deduction instead of itemizing. With the SALT cap now being increased and the standard deduction also being increased, it is unclear how many taxpayers will continue taking the standard deduction instead of itemizing.