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Thanks to the One Big Beautiful Bill Act (OBBBA), some taxpayers can now take greater advantage of the state and local tax deduction, known as SALT.
The OBBBA expands the SALT deduction, potentially allowing taxpayers to deduct a larger amount of their local, state, and property taxes from their income.
“If you look at the folks that this primarily benefits, generally, it’s upper middle income taxpayers, folks in high tax states [with] a lot of property taxes or income taxes,” said Dennis Huergo, vice president at Wealth Enhancement Group.
We connected with more experts to see who can take advantage of the bigger deduction and whether it makes financial sense for them to do so.
Key Takeaways
- For those who itemize, the OBBBA raises the SALT deduction cap to $40,000 for households earning under $500,000, as measured by their modified adjusted gross income (AGI).
- People who pay more than $10,000 in state and local taxes will benefit most—for example, high earners in high-tax states such as New York and California.
- Whether to itemize so you can take this deduction, or take the standard deduction, will depend on your income and whether there are other itemized deductions you want to take advantage of.
What Is the SALT Deduction and How Is It Changing?
The SALT deduction is available to those who itemize their deductions instead of taking the standard deduction. With the SALT deduction, you can subtract your state and local taxes from your income, which reduces your total taxable income. This can be especially worthwhile if you live in a high-tax state like California or New York.
For tax years 2025 through 2029, the OBBBA allows households that earn less than $500,000 to deduct up to $40,000 worth of state and local taxes from their income if they itemize. For those making between $500,000 and $600,000, the amount phases down until it reaches a $10,000 cap for people making $600,000 or more.
In the past, there was no cap on the SALT deduction, so taxpayers could deduct an unlimited amount of state and local taxes from their income. However, Trump’s 2017 tax bill imposed a cap of $10,000.
“For a number of high earners in states like California, New York, and New Jersey, the Tax Cuts and Jobs Act [TCJA] was not a tax cut, but actually a significant tax increase for them,” said Megan Gorman, managing partner at Chequers Financial Management.
How Will This Change Impact Taxpayers?
The changes to SALT in the TCJA resulted in more taxpayers opting for the standard deduction over itemized deductions, since it also increased the standard deduction from $6,500 to $12,000 for single filers.
In 2017, more than 30% of taxpayers itemized their deductions. By 2021, after the TCJA, that figure dropped to 9%.
When taxpayers itemize deductions, they can deduct charitable donations, mortgage interest, certain medical expenses, and more. Typically, taxpayers take the deduction that reduces their taxable income the most.
“A lot of the thinking that has to go into it is whether or not they [high earners] want to itemize and take advantage of the charitable deduction and the limited SALT deduction or if they’re just going to continue to take the standard deduction,” Gorman said.
The OBBBA makes the rise in the standard deduction permanent, expanding it for 2025 and increasing it annually for inflation. For the 2025 tax year, the standard deduction is $15,750.
However, experts note that even if you’re a high earner, you might not gain much from this new change, because taxpayers making more than $600,000 still face the TCJA’s cap of $10,000.
“What will become important for certain types of taxpayers is if they really want to take advantage of SALT cap and they make $600,000 and they’re an executive and have access to something like deferred compensation, they could look to defer to get the income to a point where they could take the deduction,” Gorman said. “[For] a $40,000 deduction—is the juice worth the squeeze?”
Tip
While representatives from states like New York and California fought hard to include the higher SALT deductions in negotiations over the OBBBA, these changes end Dec. 31, 2029.
The Bottom Line
OBBBA could provide extra savings for high earners, especially those in high-tax states. For tax year 2025, households earning under $600,000 can now deduct a larger portion of their state and local taxes if they choose to itemize. Taxpayers should consider whether itemizing under the new rules makes more sense than taking the standard deduction, which was also expanded under the new tax bill.
