A $40,000 SALT Deduction? Here’s the Catch…

If you’ve been frustrated by the tight SALT Deduction limits since 2018, there’s good news ahead—but it’ll take a little strategy to unlock the full benefit.

Starting in 2025, the One Big Beautiful Bill Act (OBBBA) ramps up the SALT deduction cap to a whopping $40,000. But here’s the catch: higher incomes will trigger phase‑outs, potentially cutting your advantage.

Don’t wait to plan—smart moves now could make all the difference.

OBBBA Enhances Your SALT Deduction

Under the Tax Cuts and Jobs Act (TCJA), the SALT Deduction cap was stuck at $10,000 ($5,000 if married filing separately), frustrating many in high-tax states. The OBBBA rewrites that story:

• 2025–2029: Cap jumps to $40,000 for joint filers and $20,000 for separate filers, with a 1% annual inflation bump starting in 2026.
• 2030: Unless Congress acts, the limit snaps back to $10,000/$5,000. SALT deduction

How the SALT Deduction Phase-Out Works

The benefit isn’t automatic for everybody:

• In 2025, the full SALT Deduction begins to phase out when your modified adjusted gross income (MAGI) exceeds $500,000 ($250,000 if filing separately).
• Phase‑out reduces your allowed SALT cap by 30% of your MAGI over the threshold—but never below $10,000. SmartAsset

SALT Deduction in Action: Real-World Examples

• Example 1 — Full Benefit
  Married, joint filer, pays $50,000 in SALT, MAGI $300,000. MAGI is below $500,000, so you get the full $40,000 SALT Deduction.
• Example 2 — Partial Benefit
  Pays $60,000 in SALT, MAGI $550,000. Excess $50,000 × 30% = $15,000 phase-out, so your cap is $25,000 instead of $40,000.
• Example 3 — Minimum Benefit
  Pays $70,000 in SALT, MAGI $700,000. The calculated phase-out drops your SALT cap to the minimum $10,000.

Related Reads

Want to understand whether itemizing or taking the standard deduction serves you better? Check out our detailed comparison:
Itemized and Standard Deductions—Which is better?

IRS Official Guidance on the SALT Deduction

The IRS offers a clear breakdown of what counts toward the SALT Deduction, including:

• State and local income taxes (via withholding or estimated payments)
• Real property taxes
• Personal property taxes
• State and local general sales taxes (alternative to income taxes) Can you benefit from the SALT cap workaround?

This official guidance covers current allowed deductions, crucial for planning ahead under the OBBBA’s shifting rules.

Strategies to Maximize Your SALT Deduction

• Time your income — If possible, defer income or shift deductions to stay under phase-out thresholds.
• Prepay property taxes — Align your payments with itemized timing to capture more SALT benefits.
• Mix deductions smartly — Mortgage interest, charitable giving, and medical expenses all play into whether it makes sense to itemize.
• Use PTE “workarounds” — For pass-through entity owners, paying SALT at the entity level may provide additional indirect deductions. Can you benefit from the SALT cap workaround?
• Trust structures — High-income taxpayers may benefit by using multiple non-grantor trusts, each within the MAGI limit. Unlock Massive Tax Savings With Non-Grantor Trusts

The Bottom Line on the SALT Deduction

The SALT Deduction boost under the OBBBA could be a game-changer for many Americans—especially in high-tax states. But if your income drifts too high, the benefit fades fast.

Rule of thumb: Start planning now, before 2025 hits. Work with a tax advisor to map out your income, deductions, and possible entity strategies so you don’t miss out.