SALT Deduction After OBBBA: What You Need to Know

SALT Deduction After OBBBA: What You Need to Know

Introduction

With the enactment of the One Big Beautiful Bill Act (OBBBA) in mid-2025, the federal State and Local Tax (SALT) deduction—long capped at $10,000—received a significant update. This blog explores the changes, who benefits, and how to plan ahead.

1. What Is the SALT Deduction?

Under federal tax rules (Form 1040), taxpayers who itemize can deduct:

• State and local income taxes (or, optionally, state/local sales taxes),
• Real estate (property) taxes, and
• Personal property taxes (e.g., vehicle registration).

2. What's Changed Under OBBBA (Effective 2025–2029)

• Cap Increase: SALT deduction limit rises from $10,000 to $40,000 per return in 2025.
• Indexed Increases: Grows by ~1% annually through 2029 ($40,400 in 2026, etc.).
• Temporary Nature: Reverts to $10,000 in 2030 unless extended.
• Phase‑out Rule: Starts at $500,000 MAGI (joint filers), reducing the cap by 30% of MAGI overage, but never below $10,000.

3. Who Stands to Benefit Most?

• Homeowners in high-tax states (CA, NY, NJ) previously capped at $10K can now deduct more.
• Middle-income households under $500K MAGI benefit directly.
• High earners still get at least $10K, though the expanded amount is phased out.

4. Included Tax Types

The expanded SALT cap applies to:

• State/local income or sales taxes,
• Real property taxes (e.g., home), and
• Personal property taxes (vehicles, boats)

5. Strategies to Maximize SALT Deductions

1. Non‑grantor trust planning: Create trusts to multiply SALT caps (each counted separately).
2. Itemize vs. Standard Deduction: Standard deduction (~$31K for joint filers in 2025) may exceed SALT + other itemized amounts.
3. Income timing: Defer income or maximize above-the-line deductions to remain under phase-out thresholds.
4. Maintain PTET strategies: Pass-through entity taxes remain a viable workaround for business owners.

6. Timeline and Outlook

7. Key Takeaways & Planning Tips

• Review MAGI forecasts, especially near thresholds.
• Explore trust-based SALT strategies if tax burden is high—consult professionals.
• Monitor PTET developments in your state for business planning.
• Plan for 2030 cap reversion, updating strategies before the expanded SALT window closes.

Conclusion

The OBBBA provides much-needed relief for taxpayers in high-tax states—raising the SALT cap from $10K to $40K. However, phase-outs, itemizing requirements, and its temporary status mean proactive planning is crucial. Whether through trusts, timing income, or leveraging PTETs, work with your tax advisor to fully capitalize on this opportunity before the 2030 reversion.