The 2025 tax reform legislation, One Big Beautiful Bill (OBBB), introduced important changes that affect how many taxpayers calculate their deductions. One of the most significant updates is the temporary expansion of the state and local tax (SALT) deduction cap. For many individuals and families, this adjustment could mean a larger tax deduction in the coming years.
However, the new rules also come with phaseouts and planning considerations. Understanding how the expanded cap interacts with your income and itemized deductions can help you take full advantage of the opportunity.
The SALT Deduction Cap Has Increased
The OBBB raised the SALT deduction limit from $5,000 to $20,000 for married taxpayers filing separately and from $10,000 to $40,000 for all other filing statuses. This higher cap applies from 2025 through 2029, with slight increases scheduled for 2026-2029. Beginning in 2030, the cap is scheduled to return to pre-2025 levels unless new legislation is passed.
Taxes eligible for the SALT deduction include state and local real estate and personal property taxes, as well as state and local income taxes OR state and local sales taxes. The increased cap allows many taxpayers who itemize to deduct more of their state and local taxes, reducing their taxable income.
For higher-income taxpayers, the benefit begins to phase out once modified adjusted gross income (MAGI) exceeds $500,000 ($250,000 for married taxpayers filing separately). The deduction amount is reduced by 30% of the amount of MAGI above these thresholds. Once MAGI reaches $600,000 ($300,000 for married taxpayers filing separately), the deduction amount returns to pre-2025 levels.
Why the Change Matters
The expanded cap can create meaningful savings for taxpayers who pay significant property or state income taxes. Many individuals who previously took the standard deduction may now find it worthwhile to itemize again.
Because the benefit is temporary, timing and planning have become important. Taxpayers who anticipate a high level of state and local taxes may be able to maximize their deductions by strategically managing payments and income levels. Those close to the phaseout range can benefit from careful income planning to stay eligible for a larger deduction.
Planning Opportunities to Consider
There are several ways to make the most of the new SALT deduction cap:
1. Reevaluate Itemized vs. Standard Deduction
With the higher cap, more taxpayers may find that itemizing provides greater tax savings than the standard deduction. Review your expected expenses to determine which option offers the best benefit.
2. Plan the Timing of Payments
If your local government allows it, consider paying property taxes or estimated state tax payments earlier to increase your deduction for 2025.
3. Manage Your Income
Taxpayers near the $500,000 MAGI threshold can look for ways to reduce taxable income, such as maximizing contributions to retirement accounts or health savings accounts.
4. Explore Business and Trust Opportunities
Owners of pass-through entities may be able to take advantage of state-level tax elections that allow the business, rather than the individual, to deduct certain taxes. In some situations, trust structures may also help manage income and deductions efficiently.
Looking Ahead
The expanded SALT deduction cap provides a temporary window of opportunity from 2025 through 2029. By planning ahead and reviewing your potential deductions, you can determine whether itemizing will lead to greater tax savings.
Since every taxpayer’s situation is different, consulting with a professional advisor is the best way to identify the right strategy for your circumstances. YHB’s Private Client Services team can help you evaluate your options and develop a personalized approach to take full advantage of the expanded SALT cap while it lasts – contact us today to get started.
