Unlocking the New SALT Cap: How to Save Up to $40,000 This Tax Season
Discover how the new SALT deduction cap can save you more money. For the 2025 tax year, the “One Big Beautiful Bill” raised the cap to $40,000, which is four times the previous amount of $10,000. See how you can take advantage of the new SALT cap and whether you should switch from the Standard Deduction to itemized deductions this year to maximize your savings.
The One Big Beautiful Bill that passed includes permanently extending tax cuts from the Tax Cuts and Jobs Act, including increasing the cap on the amount of state and local or sales tax and property tax (SALT) that you can deduct, makes cuts to energy credits passed under the Inflation Reduction Act, makes changes to taxes on tips and overtime for certain workers, reforms Medicaid, increases the Debt ceiling, and reforms Pell Grants and student loans. Updates to this article are in process. Check our One Big Beautiful Bill article for more information.
Key Takeaways
- The SALT cap was raised from $10,000 to $40,000 for the 2025 tax year.
- If your modified adjusted gross income (MAGI) for the 2025 tax year is over $500,000 ($250,000 if you’re married filing separately), your SALT cap will be gradually reduced – but not below $10,000 ($5,000 for MFS filers).
- For the 2026 to 2029 tax years, both the SALT cap and phase-out thresholds will increase by 1% each year. Then, starting in 2030, the cap will drop back down to $10,000 ($5,000 for MFS filers) and it will no longer be phased-out for higher-income taxpayers.
- While anyone who itemizes can potentially be helped by the increased SALT cap, wealthier people and residents of high-tax states are likely to benefit more from the higher cap.
What changes were made to the SALT cap for 2025?
For the 2025 tax year, the annual limit on the federal deduction for state and local taxes – or SALT cap, for short – is increased from $10,000 to $40,000 (from $5,000 to $20,000 for married taxpayers filing a separate return). Even if you didn’t pay at least $40,000 in state and local taxes in 2025, this increase can still help you if your state and local tax bill for the year was more than $10,000.
However, the increased SALT cap is only temporary. "It increases by 1% per year from 2026 to 2029, after which it is reduced to $10,000 ($5,000 for MFS filers) for 2030 and later," says Victoria Adams, an enrolled agent and TurboTax Expert based in Aberdeen, Wash.
Also keep in mind that the SALT deduction is an itemized deduction. As a result, it’s not available if you claim the Standard Deduction, since you can’t claim both the Standard Deduction and itemized deductions on the same tax return.
Why did the SALT cap change?
The SALT cap increase was enacted as part of the “One Big Beautiful Bill” (OBBB), which is also known as the Working Families Tax Cut.
The OBBB was signed into law on July 4, 2025. However, even though the legislation was enacted in the middle of the year, the provisions increasing the SALT cap are retroactively effective to January 1, 2025. As a result, you can take advantage of the higher cap when you complete your tax return for the 2025 tax year, which you’ll file in 2026.
The SALT cap was initially created by the Tax Cuts and Jobs Act of 2017. The limit was set at $10,000 ($5,000 for married people filing separate returns) for the 2018 to 2024 tax years.
How much can the new SALT cap save me?
The SALT deduction – like all other federal income tax deductions – lowers your taxable income. But your actual tax savings are only a percentage of the deductible amount, which depends on your tax bracket.
As a result, even though the maximum SALT deduction jumps from $10,000 to $40,000 for the 2025 tax year (from $5,000 to $20,000 for married people filing separately), that doesn’t mean you can reduce your tax bill by an additional $30,000 if you qualify for the full deduction.
For example, suppose you qualify for a $40,000 SALT deduction in 2025. If you’re in the 24% tax bracket, the additional $30,000 SALT deduction will at most lower your tax bill by an extra $7,200 ($30,000 x 0.24 = $7,200). That’s certainly a nice additional tax reduction, but it’s still a far cry from $30,000.
TurboTax Tip:
"The One Big Beautiful Bill temporarily raises the maximum deduction for state and local taxes to $40,000 for the 2025 tax year. It's then increased by 1% each year until it drops back down to $10,000 starting in 2030." – Victoria Adams, EA, Aberdeen, WA
What is the SALT cap after 2025?
While the OBBB raised the SALT cap from $10,000 to $40,000 for the 2025 tax year (from $5,000 to $20,000 for married people filing separately), it also increased the cap by an additional 1% per year for the 2026 to 2029 tax years.
However, the increases are only temporary. The SALT cap reverts back to $10,000 ($5,000 for MFS filers) starting with the 2030 tax year.
|
SALT Cap After 2025 |
||
|
Tax Year(s) |
Married Taxpayers Filing Separately |
All Other Taxpayers |
|
2026 |
$20,200 |
$40,400 |
|
2027 |
$20,402 |
$40,804 |
|
2028 |
$20,606 |
$41,212 |
|
2029 |
$20,812 |
$41,624 |
|
2030 and beyond |
$5,000 |
$10,000 |
Is the SALT cap reduced for higher-income taxpayers?
The new, higher SALT cap comes with a twist. For the 2025 tax year, it’s gradually reduced by 30 cents for every dollar your modified adjusted gross income (MAGI) is above $500,000 ($250,000 if you’re married filing separately). However, the phase-out stops once the SALT cap drops to $10,000 ($5,000 for MFS filers).
For example, suppose you’re single and paid $37,000 in eligible state and local taxes in 2025. However, since your MAGI is $520,000 – which is $20,000 over the $500,000 threshold – your SALT cap is reduced by $6,000 ($20,000 x .30 = $6,000). That means you can only deduct $34,000 of your state and local taxes ($40,000 - $6,000 = $34,000). The remaining $3,000 of state and local taxes you paid for the year are not deductible ($37,000 - $34,000 = $3,000).
As with the SALT cap itself, the phase-out threshold is increased by 1% each year from 2026 to 2029. Then, since the SALT cap drops back down to $10,000 ($5,000 for MFS filers), the phase-out goes away starting with the 2030 tax year.
|
SALT Cap Phase-Out Thresholds |
||
|
Tax Year |
Married Filing Separately |
All Other Filing Statuses |
|
2025 |
$250,000 |
$500,000 |
|
2026 |
$252,500 |
$505,000 |
|
2027 |
$255,025 |
$510,050 |
|
2028 |
$257,575 |
$515,151 |
|
2029 |
$260,151 |
$520,302 |
|
2030 and beyond |
Not Applicable |
Not Applicable |
Note: To calculate your MAGI for SALT cap purposes, start with your adjusted gross income (AGI), then add any deduction or exemption you claim that year for:
- foreign earned income
- foreign housing costs
- income for residents of Guam, American Samoa, the Northern Mariana Islands, or Puerto Rico
What taxes can be included in the SALT deduction?
You can only include the following state and local taxes in the SALT deduction:
- income or sales taxes
- real estate taxes
- personal property taxes
Other state and local taxes – such as estate, inheritance, cigarette, gas, and real estate transfer taxes – can’t be included in the federal deduction.
Note that you have to choose between deducting state and local income taxes or sales taxes. You can pick whichever amount is higher, but you can’t deduct both. Most people will be better off deducting state and local income taxes, unless you live in a state with no income tax. Deducting your sales tax also might be the better option if you paid sales tax on one or more high-priced items during the year, such as a car, boat, or airplane.
The SALT cap applies to the combined total of eligible state and local taxes. For example, if you paid $18,000 in state income taxes, $15,000 in real estate taxes, and $9,000 in personal property taxes in 2025 (for a total of $42,000), you still can only deduct $40,000 (the SALT deduction cap for 2025) even though you paid less than $40,000 of each separate type of tax.
Who will benefit most from the SALT cap increase?
Generally speaking, people with higher incomes and/or who live in high-tax states are more likely to benefit from the increased SALT cap.
First of all, you have to claim itemized deductions – instead of taking the Standard Deduction – to claim the SALT deduction. And since well-paid people are more likely to claim itemized deductions than other taxpayers, they’re also more likely to benefit from the higher SALT cap. Lower- and middle-income taxpayers tend to claim the Standard Deduction, which means they can’t take advantage of the increased SALT cap.
Plus, for several reasons, high-salaried people also tend to pay more in state and local taxes. Among other things, they generally:
- earn more money, so their state income tax bills are higher
- buy more “stuff,” so they pay more sales tax
- own a home (as opposed to renting), so they owe real estate taxes
- live in more expensive homes, so their real estate tax bills are bigger
- own more cars, boats, and other items subject to personal property taxes
As a result, their total state and local tax burden is more likely to exceed the old $10,000 SALT cap.
But don’t forget that if your income is too high (MAGI above $500,000, or over $250,000 if you’re married filing separately, for 2025), your SALT cap is reduced – potentially back down to the old $10,000 limit ($5,000 for MFS filers).
And what if you live in a state with high income, sales, or property taxes? Even if you’re not rich, you still might pay more than $10,000 in deductible state and local taxes if you live in one of these states, such as California, Illinois, New York, or New Jersey (to name a few). In that case, you can benefit from the higher SALT cap if you itemize.
Should I itemize now that the SALT cap is higher?
Since the Tax Cuts and Jobs Act of 2017 nearly doubled the Standard Deduction and cut certain itemized deductions, around 90% of all taxpayers claim the Standard Deduction instead of itemized deductions. However, now that the SALT cap is higher, more people might do better claiming itemized deductions instead of the Standard Deduction on their federal tax return.
Remember, you can itemize or take the Standard Deduction – but not both. Fortunately, in most cases, you can pick whichever one is higher. And now that the maximum SALT deduction, which is an itemized deduction, was increased from $10,000 to $40,000 (2025 amount), the potentially higher deduction could make itemizing worthwhile "if it pushes your itemized deductions above than the Standard Deduction for the year," Adams notes.
Let’s take a look at a hypothetical example: Suppose you’re single, paid $25,000 in deductible state and local taxes in 2025, and don’t qualify for any other itemized deductions for the 2025 tax year.
If the SALT cap wasn’t increased – that is, it remained at $10,000 for 2025 – the $15,750 Standard Deduction available to single filers would be higher than a SALT deduction that’s capped at $10,000. So, in that case, you would choose the Standard Deduction over itemized deductions on your return for the 2025 tax year.
However, since the SALT cap was increased to $40,000 for the 2025 tax year, you’re better off claiming itemized deductions instead of the Standard Deduction. That’s because you can claim a $25,000 SALT deduction, which is more than the $15,750 Standard Deduction.
Frequently asked questions about the new SALT cap
Q1: Can I still use a "Pass-Through Entity Tax" (PTET) workaround?
The “One Big Beautiful Bill” did not affect the ability to use state laws that help owners of pass-through entities – such as partnerships, S corporations, and certain limited liability companies – bypass the SALT cap. While these “SALT workaround” laws vary from state to state, they generally shift the payment of state taxes from the owners (who are subject to the cap) to their businesses (which aren’t).
If you’re wondering if the higher SALT caps make use of the state workaround laws unnecessary, consulting a qualified tax professional is your best bet. See how you can get year-round business tax planning services from a TurboTax expert.
Q2: Will the increased SALT cap affect the Alternative Minimum Tax (AMT)?
The SALT deduction still isn’t used to calculate the AMT after passage of the “One Big Beautiful Bill.” As a result, even though your SALT deduction may be higher now that the SALT cap has been temporarily raised, you may still have to pay the AMT if your income is above a certain amount.
In fact, a larger SALT deduction, which lowers your regular tax bill, could trigger the AMT. You must pay the higher of your regular tax or the AMT. So, if a higher SALT deduction reduces your regular tax, but it doesn’t do the same for your AMT, it could push your regular tax liability below your AMT. If that happens, you will have to pay the AMT. Check out this article to learn more about the AMT.
Q3: Should you claim the SALT deduction?
You should claim the SALT deduction if you paid deductible state and local taxes during the year, and your total itemized deductions exceed the Standard Deduction for your filing status. In addition to the SALT deduction, common itemized deductions include write-offs for:
- medical and dental expenses that exceed 7.5% of your AGI
- mortgage interest payments
- charitable donations
- casualty or theft losses
If your Standard Deduction is higher than your itemized deductions, then you don’t want to claim the SALT deduction. See if you’re better off claiming itemized deductions or the Standard Deduction.
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