As a result of new tax legislation proposed by Donald Trump in 2025, the SALT (State and Local Tax) deduction cap in the United States which has been capped at 10,000 dollars has been changed to 40,100 dollars. The new cap allows taxpayers to deduct more state and local tax amounts on their federal returns and will be in effect for the 2025 tax year and beyond. The new cap will provide tax relief, especially to taxpayers living in states with higher tax rates, and will be gradually phased out for those earning higher income with new tax legislation proposed by Trump in 2025. Before the 2017 Tax Cuts and Jobs Act (TCJA), taxpayers who itemize their deductions were able to deduct an unlimited amount of state and local income property and sales tax. The 2017 TCJA legislation put a cap of 10,000 dollars on the SALT deduction which hit taxpayers hardest in those high tax states like New York, New Jersey, and California. Trump’s tax reforms in 2025 will put a cap of 40,100 dollars on the SALT deduction which will revert to 10,000 dollars on 2030. The new reforms will at least temporally quadruple the deduction limit until 2029.
Who Profits More?
People are more likely to profit from the increased SALT Cap if they have adjusted gross income under $500,000 annually. Taxpayers that go over this limit are subject to a phase-out, as they receive a reduction in the deduction of 30% of their MAGI that is over $500,000, and this reduces it to the original $10,000 limit at around $600,000 or more in income. Therefore, more middle to upper class, upper income households in high tax states get the most benefit, as they are able to deduct a lot more of their taxable income.
Effect on Taxpayers in High Tax States
People that live in these states get high SALT deductions and so their income taxes get reduced. As an example, a couple that is married and makes $450,000 in the state, and pays $25,000 in income tax and $15,000 in property tax, and $10,000 state taxes, could only deduct $10,000. They now can deduct $40,000, meaning they can get an additional $30,000 of tax savings. Critics, however, discuss that the extra deduction is mainly benefiting high income earners and it is increasing the federal deficit.
Table: SALT Deduction Limits and Income Thresholds (2025-2030)
| Tax Year | SALT Deduction Cap | Income Phase-Out Threshold (MAGI) |
|---|---|---|
| 2025 | $40,100 | $500,000 |
| 2026 | $40,500 | $505,000 |
| 2027 | $40,900 | $510,000 |
| 2028 | $41,300 | $515,000 |
| 2029 | $41,700 | $520,000 |
| 2030 | $10,000 | — |
Fiscal and Political Implications
While the change will provide immediate tax relief for many, it still increases federal deficits by approximately $915 billion in the next ten years. It shows a kind of political tightrope; some Republican lawmakers from high-tax states backed the increases for their constituents, while conservatives are usually against expanding deductions that decrease federal revenue. The SALT cap increase was included in a broader tax package under Trump that included changes to tax brackets and other deductions.
FAQs
1. Who qualifies for the $40,100 SALT deduction cap?
Taxpayers under $500,000 (or $250,000 for married filing separately) receive the full cap, which phases out between $500,000 and $600,000.
2. Is the $40,100 SALT deduction cap permanent?
No, it will only be in place from 2025 to 2029 and will revert back to $10,000 in 2030.
3. How does the SALT cap increase affect middle-income taxpayers?
It benefits middle-income taxpayers in high-tax states the most. Especially those who state and local taxes are greater than $10,000 and are able to itemize, their federal taxable income will significantly decrease.
