For seven years, the $10,000 cap on state and local tax (SALT) deductions was one of the most contentious provisions in the U.S. tax code. Imposed by the 2017 Tax Cuts and Jobs Act, it hit residents of high-tax states like New York, California, and New Jersey particularly hard. Now, relief has finally arrived—though with some important strings attached.

The New $40,000 Cap

Under the One Big Beautiful Bill Act signed into law on July 4, 2025, the SALT deduction cap has increased fourfold to $40,000 for married couples filing jointly. This allows taxpayers who itemize deductions to write off up to $40,000 in combined state income taxes, local income taxes, and property taxes.

The key details:

  • 2025 cap: $40,000 (married filing jointly) / $20,000 (married filing separately)
  • Annual increases: Cap rises 1% per year through 2029
  • 2030 and beyond: Cap reverts to $10,000 unless extended

For a family in New Jersey paying $18,000 in property taxes and $15,000 in state income taxes, this change is significant. Under the old rules, only $10,000 could be deducted. Under the new rules, the full $33,000 qualifies—potentially saving $7,000 or more in federal taxes depending on their bracket.

The Income Phase-Out: A Hidden "SALT Torpedo"

The new law isn't a straightforward win for everyone. Congress included income-based phase-outs that reduce or eliminate the higher cap for upper-income taxpayers.

The phase-out mechanics work as follows:

  • Phase-out begins: Modified adjusted gross income (MAGI) of $500,000
  • Phase-out rate: The $40,000 cap is reduced by 30% of income above $500,000
  • Phase-out complete: At $600,000 MAGI, the cap drops to $10,000

This creates what tax professionals are calling a "SALT torpedo"—an artificially high marginal tax rate for households in the phase-out zone.

"If you're earning between $500,000 and $600,000, every additional dollar of income costs you not just marginal tax but also 30 cents of lost SALT deduction. That can push your effective federal rate above 45%."

— Robert Willens, Tax Analyst

Who Benefits Most

The primary beneficiaries of the higher SALT cap are six-figure households in high-tax states who earn below the $500,000 phase-out threshold. This includes many dual-income professional families in coastal metro areas.

Consider a hypothetical married couple in California:

  • Combined income: $350,000
  • State income tax: $25,000
  • Property tax: $12,000
  • Total SALT: $37,000

Under the old $10,000 cap, they could only deduct $10,000. Under the new $40,000 cap, they can deduct the full $37,000—a difference of $27,000 in deductions. At a 32% marginal rate, that's roughly $8,640 in federal tax savings.

Who Doesn't Benefit

Several groups won't see meaningful relief from the higher cap:

Standard deduction filers: Approximately 90% of taxpayers take the standard deduction rather than itemizing, according to IRS data. The SALT cap only matters if you itemize. With the standard deduction at $31,500 for married couples in 2025, many households don't have enough total deductions to make itemizing worthwhile.

Low and middle-income households: Most taxpayers in these brackets don't have $40,000 in SALT liability to begin with. A family paying $5,000 in property taxes and $3,000 in state income taxes was never limited by the $10,000 cap.

Very high earners: Those with MAGI above $600,000 see no benefit from the higher cap—they're still limited to $10,000.

Planning Strategies

Tax advisors are already developing strategies to help clients maximize the new SALT deduction:

Income timing: For those near the $500,000 threshold, deferring income to a lower-earning year could preserve more of the SALT deduction.

Property tax prepayment: In some cases, prepaying property taxes in December rather than January can shift deductions into a more favorable year.

Business structure considerations: Pass-through entity owners in some states can use workarounds that effectively bypass the SALT cap altogether.

Charitable strategies: The increased SALT deduction may make charitable giving less attractive from a pure tax perspective, as the value of itemizing changes.

The Political Background

The SALT cap was always as much a political issue as a tax policy question. The $10,000 limit disproportionately affected Democratic-leaning states with high income and property taxes, leading to accusations that it was designed to punish political opponents.

The compromise in the OBBBA—raising the cap while adding income limits—represented a middle ground. High-tax state representatives got relief for their constituents, while fiscal hawks limited the revenue cost by phasing out benefits for the highest earners.

The temporary nature of the increase (through 2029) virtually guarantees the issue will return to Congress in the coming years.

What to Do Now

If you're a taxpayer in a high-tax state, here are immediate steps to consider:

  • Calculate your total SALT liability to determine if you'll benefit from the higher cap
  • Run projections on whether itemizing now makes sense if you've been taking the standard deduction
  • Review your income to see if you're near the phase-out zone
  • Consult a tax professional about timing strategies for property taxes and income
  • Consider adjusting estimated tax payments if your federal liability has decreased

For millions of Americans in high-tax states, the quadrupled SALT cap represents long-awaited relief. Understanding the rules—especially the phase-outs—is essential to capturing the full benefit.