September 3, 2025

The One Big Beautiful Bill Act (OBBBA) temporarily increases the federal cap on state and local tax (SALT) deductions, offering potential relief for some taxpayers beginning in 2025. The higher cap, however, is subject to an income-based phaseout that limits its benefits for high earners.

What’s Changed?

• SALT deduction cap increased from $10,000 to $40,000 for tax years 2025 through 2029.
• Applies only to taxpayers who itemize deductions.
• Cap for married filing separately is $20,000.
• Cap increases by 1% per year through 2029.​
• Reverts to the prior $10,000 cap beginning in 2030.

New Income-Based Phaseout

• Begins for modified adjusted gross income (MAGI above $500,000 (or $250,000 if married filing separately)).
• Deduction is reduced by 30% of income over that threshold.
• Taxpayers with MAGI $600,000 or more (or $300,000 for married filing separately) see no benefit and remain limited to a $10,000 deduction.
• Threshold amounts also increase by 1% per year through 2029.​

Example

• Couple with $520,000 MAGI:
  • $20,000 over threshold × 30% = $6,000 reduction
  • New cap = $34,000 ($40,000 SALT cap - $6,000 phaseout); $24,000 increase from prior law
• Couple with $600,000+ MAGI:
  • Deduction remains capped at $10,000.

PTET Workarounds Remain Unchanged

The OBBBA does not alter or restrict the pass-through entity tax (PTET) workaround. Business owners can continue to use state-level PTET regimes to convert otherwise nondeductible state income taxes into a federal deduction.

Planning Note

If your income is near the phaseout threshold, the expanded SALT cap may provide meaningful savings, especially in high-tax states, and could make itemizing deductions more favorable than taking the standard deduction starting in 2025.

However:

• Higher-income taxpayers may see little or no change in their SALT deduction
  • Deduction rates will now be subject to a 35% rate instead of the former top rate of 37%
• Some state PTET regimes are scheduled to expire December 31, 2025, unless extended
• Taxpayers should assess whether the higher cap impacts 2025 planning and whether a PTET election continues to make sense

Contact your tax advisor to evaluate how the SALT cap changes interact with your overall tax position, and to plan for both the temporary nature of the provision and potential PTET expirations in your state.