If you live in a state with high property or income taxes, the federal $10,000 limit on state and local tax (SALT) deductions has generally been restrictive since 2018. That limit introduced under the 2017 Tax Cuts and Jobs Act hit many middle- and upper-income households hard, especially taxpayers in states like Massachusetts, California, New York, and New Jersey.
The One Big Beautiful Bill Act (OBBBA) provides relief for this and temporarily raises the SALT deduction limit to $40,000 for married couples filing jointly ($20,000 if filing separately). Here’s what to know and how to plan.
🧩 How the New SALT Limit Works
Beginning with the 2025 tax year, the SALT deduction limit increases to $40,000 for joint filers and will adjust slightly each year for inflation through 2029.
However, the higher deduction begins to phase out for high earners:
- Full benefit if your modified adjusted gross income (MAGI) is below $500,000
- Partial benefit between $500,000–$600,000
- Back to $10,000 limit if above $600,000
After 2029, the deduction reverts to the old $10,000 limit unless Congress acts.
💡 Who Will Benefit Most
The expansion of the limit primarily helps:
- Homeowners in high-tax states
- Married couples who itemize and pay large property and income taxes
- Families with income under $500,000 who can fully use the higher limit
Example:
A couple in Massachusetts with $15,000 in property taxes and $25,000 in state income taxes can now deduct the full $40,000 instead of just $10,000. That’s potentially $6,000–$10,000 in annual federal tax savings depending on their tax bracket.
🧭 Smart Planning Strategies
Here’s how individuals can take advantage of the expanded SALT deduction:
- Revisit Whether You Should Itemize
If you’ve been taking the standard deduction, the new SALT limit may change the math. Add up your mortgage interest, charitable donations, and medical expenses (these deductions for these expenses are also subject to limitations) to see if itemizing yields a lower tax bill.
- Time Your Tax Payments
Consider when you pay state and property taxes. Paying certain 2025 taxes before year-end could increase your deduction for that year but IRS and state payment rules should be reviewed before prepaying.
- Manage Your Income
If you’re near the $500,000 to $600,000 range, deferring bonuses or increasing 401(k) retirement contributions could keep you eligible for the full deduction.
- Group Charitable Contributions
Group donations into one year to maximize itemized deductions, and take the standard deduction the next year. It’s a simple but effective way to manage deduction timing.
⚠️ Watch Out for These Pitfalls
The higher SALT limit does have some caveats:
- Temporary relief only: The expanded limit expires after 2029.
- Phaseout for high earners: Income over $600,000 sees little to no benefit.
- Standard deduction: If your itemized deductions still don’t exceed the standard amount, this won’t help.
- Timing restrictions: You can’t always deduct prepaid taxes, only those actually paid in the tax year.
- AMT exposure: The alternative minimum tax may still reduce the benefit for some taxpayers.
🧾 What You Should Do Now
To make the most of the new SALT limit:
- Estimate your 2025 taxes early. Check if you’ll benefit from itemizing again.
- Coordinate income and deductions. Timing matters for staying below phaseout levels.
- Work with your CPA. A tax professional can model a number of scenarios and identify opportunities specific to your state.
- Stay informed. Congress may revise or extend the expanded deduction before 2029.
✅ The Bottom Line
The new $40,000 SALT deduction is a welcome change for homeowners and taxpayers in high-tax states although it’s temporary and income-dependent. With thoughtful planning, you can capture significant savings between now and the end of 2029.
Before filing next year’s return, take a closer look at your deductions and talk with your CPA about your best options. Smart planning today can result into real money saved tomorrow!
