Day 1: SALT Cap Soars to $40,000—A Huge Win for High-Tax States (But Not for Everyone)
Welcome to our series on how the One Big Beautiful Bill Act (OBBBA) is changing the tax landscape. Over the next week, we’re exploring how this new legislation could impact your taxes—and your wallet—in practical terms.
We’re kicking things off with one of the biggest headlines from the new law: the dramatic increase in the State and Local Tax (SALT) deduction cap.
What Changed?
Under the 2017 Tax Cuts and Jobs Act (TCJA), the SALT deduction was capped at $10,000 per year. That meant taxpayers in high-tax states were often unable to fully deduct:
State income taxes
Local income taxes
Property taxes
This may bring back itemized deductions for many filers who were just under the standard deduction. In recent years, millions of taxpayers stopped itemizing because their total deductions—including SALT—fell below the higher standard deduction introduced by the TCJA. Now, with the SALT cap raised to $40,000, taxpayers in states with moderate property taxes or state income taxes may find that their combined deductions exceed the standard deduction again, making itemizing worthwhile and potentially lowering their federal tax bill.
Here’s how the OBBBA changes things:
Raises the SALT deduction cap from $10,000 → $40,000 for taxpayers with Modified Adjusted Gross Income (MAGI) up to $500,000.
The cap adjusts upward slightly each year through 2029.
Sunsets in 2030, dropping back to $10,000 unless new legislation extends it.
Taxpayers earning above $500,000 face phaseouts, reducing how much of the deduction they can claim.
Who Benefits?
Homeowners in high-tax states who pay significant property taxes and state income taxes now can deduct more of those costs.
Married couples and families whose combined state and local taxes often exceed $10,000 may find it worthwhile to itemize again.
Upper-middle-income earners who previously lost out under the $10,000 cap.
For example, a married couple in Michigan who pays $8,000 in property taxes and $7,000 in state income tax would previously have stayed under the old $10,000 SALT cap. But under the new $40,000 cap, they can deduct the full $15,000 in state and local taxes—potentially saving $1,200–$1,500 in federal taxes, depending on their tax bracket.
Who Should Still Be Cautious?
High-income earners over $500,000 MAGI may see their deduction phased out, reducing or eliminating this benefit.
Taxpayers in low-tax states might see no meaningful change if their total SALT deductions never exceeded $10,000.
Taxpayers who are far under the standard deduction would not benefit from this change, which includes many low-income families. For these taxpayers, the higher SALT cap doesn’t help because their total itemized deductions still wouldn’t exceed the standard deduction amount.
This change is temporary. Without further legislation, the higher cap disappears in 2030.
What Should You Do?
Recalculate your potential deductions. The higher SALT cap may make it worthwhile to itemize instead of taking the standard deduction.
Track property taxes and state income taxes. Good records ensure you claim every dollar you’re entitled to.
Plan for the sunset in 2030. Don’t assume this higher cap is here forever—future tax law changes could take it away.
Why Tax Planning Matters Now More Than Ever
A A higher SALT deduction could mean real tax savings—but only if your overall tax situation makes it beneficial to itemize.
Tax planning helps you:
Evaluate whether you’ll benefit more from itemizing or taking the standard deduction. For many lower-income families, itemizing may still not make sense because their total deductions remain below the standard deduction—even with the higher SALT cap.
Project your tax liability under the new rules.
Strategically time property tax payments or estimated state tax payments to maximize deductions.
Prepare for the 2030 sunset so you’re not caught off guard.
The new SALT cap can be a powerful tool—but it’s not an automatic windfall for everyone. Smart tax planning makes sure you’re using it to your full advantage, especially if you’re close to the standard deduction threshold.
Bottom line: The OBBBA’s SALT cap increase offers significant relief for many taxpayers, especially those in high-tax states. But the benefit isn’t universal—and smart planning is key to maximizing your savings.
Curious how the new SALT deduction cap impacts your taxes? Let’s crunch the numbers together. Schedule a discovery call to learn about our tax planning services and discover how to make the most of your deductions under the OBBBA.
Up next: Day 2 – Higher Standard Deduction and Child Tax Credit: How Families Can Benefit (And Who Won’t)
