The One Big Beautiful Bill Act, signed on July 4, 2025, raised the federal cap on the state and local tax deduction from $10,000 to $40,000. That is the headline of the new Trump SALT deduction $40,000 cap, but the full picture is narrower: the higher limit applies only to filers who itemize, phases down for higher incomes, and is scheduled to revert to $10,000 in 2030 unless Congress extends it.1Bipartisan Policy Center. SALT Deduction Changes in the One Big Beautiful Bill Act
What the SALT Deduction Covers
The SALT deduction lets taxpayers who itemize on Schedule A deduct certain state and local taxes they have already paid. Qualifying taxes include property taxes and either state and local income taxes or general sales taxes, but not both — you pick whichever is larger.2IRS. Tax Topic No. 503, Deductible Taxes Federal income and payroll taxes, transfer and stamp taxes, HOA fees, and service charges for water, sewer, or trash do not count.3Intuit TurboTax. SALT Deduction Explained
If you take the standard deduction, none of this matters to your return. Only about 10 percent of filers itemize, and the SALT deduction is only available to that group.4National Taxpayers Union Foundation. Blue States Would Reap Biggest Benefit From Raising SALT Cap
The New Cap, Year by Year
The One Big Beautiful Bill Act sets the SALT cap on a schedule that steps up slightly each year, then drops back down:5Bipartisan Policy Center. How Would the 2025 House Tax Bill Change the SALT Deduction
- 2025: $40,000 ($20,000 for married filing separately)
- 2026: $40,400 ($20,200 for married filing separately)
- 2027 through 2029: the cap rises 1 percent per year
- 2030 and later: the cap reverts to $10,000 ($5,000 for married filing separately)
The 2030 reversion is written into the statute as a sunset. Congress can extend the higher cap, but if it does nothing, the $10,000 limit returns automatically.6Peter G. Peterson Foundation. What Is the SALT Cap
The Income Phase-Down
The $40,000 figure is not available to every itemizer. Once modified adjusted gross income crosses $500,000 in 2025 ($250,000 for married filing separately), the cap begins to shrink. The reduction is 30 cents for every dollar of income above the threshold, and the cap will not fall below $10,000.7Thomson Reuters. SALT Deduction8H&R Block. One Big Beautiful Bill SALT Deduction
Here is how the math works. A taxpayer with $550,000 in modified AGI in 2025 is $50,000 over the threshold. Multiply that by 30 percent and the cap is reduced by $15,000, leaving a maximum SALT deduction of $25,000 for the year.9DHJJ. SALT Deduction 2025 Phaseouts The phase-down bottoms out at $10,000 for filers earning roughly $600,000 or more.10J.P. Morgan Private Bank. Can You Benefit From the SALT Cap Workaround
Both the income threshold and the maximum cap increase by 1 percent each year through 2029. In 2026, the phase-down starts at $505,000 and the maximum cap is $40,400.5Bipartisan Policy Center. How Would the 2025 House Tax Bill Change the SALT Deduction
The Marriage Penalty
The new $40,000 cap does not double for joint filers. Single taxpayers and married couples filing jointly share the same ceiling. Two unmarried people living together can each claim up to $40,000, a combined $80,000; a married couple filing jointly is capped at $40,000 between them.11Fidelity. SALT Deduction Increase Tax analysts have described this as a marriage penalty built into the law, and it has been part of every version of the SALT cap since 2017.12Foster Garvey. One Big Beautiful Bill Act Part 1: The SALT Deduction
The married-filing-separately figure is half the joint cap: $20,000 in 2025, $20,200 in 2026. Filing separately can produce a larger combined deduction for some couples, though other consequences of separate filing often offset that advantage.
The Pass-Through Workaround
The SALT cap applies to individuals. More than 35 states have laws letting pass-through businesses — partnerships, S corporations, and some LLCs — pay state income taxes at the entity level instead of on the owners’ individual returns. Because the entity pays the tax, the payment is not subject to the individual SALT cap. The IRS authorized this treatment in a 2020 notice, and the One Big Beautiful Bill Act explicitly preserves it.10J.P. Morgan Private Bank. Can You Benefit From the SALT Cap Workaround7Thomson Reuters. SALT Deduction
Some state-level pass-through entity tax laws were set to expire at the end of 2025, and as of mid-2026 the Treasury Department had not issued material new guidance on the workaround.10J.P. Morgan Private Bank. Can You Benefit From the SALT Cap Workaround If you own a pass-through business, whether the workaround is still available depends on your state.
Who Actually Benefits
Even at $40,000, the raised cap flows almost entirely to higher-income households, because lower- and middle-income taxpayers overwhelmingly take the standard deduction and do not itemize at all.4National Taxpayers Union Foundation. Blue States Would Reap Biggest Benefit From Raising SALT Cap Before the 2017 cap, roughly 25 percent of taxpayers benefited from the SALT deduction; after the $10,000 cap took effect, that dropped to about 10 percent.13Tax Policy Center. How Did the TCJA Change the Standard Deduction and Itemized Deductions
Geographically, the deduction concentrates in a handful of high-tax states. Connecticut, New York, New Jersey, California, and Massachusetts had the highest average SALT deductions among itemizers before 2018, with averages of roughly $8,900 to $9,200, meaning many filers in those states were already bumping against the $10,000 ceiling.14Bipartisan Policy Center. Which States Benefit Most From the SALT Deduction Analysis from the National Taxpayers Union Foundation estimated that even a $25,000 cap would send 78 percent of the benefit to states that voted Democratic in the 2024 election, with California, New York, and New Jersey capturing 53 percent of the total relief.4National Taxpayers Union Foundation. Blue States Would Reap Biggest Benefit From Raising SALT Cap
Distributional studies point in the same direction. The Tax Policy Center found that fully repealing the cap would cost about $1.2 trillion over a decade, with 43 percent of the benefit going to the top 1 percent of earners and nearly three-quarters going to households earning above $430,000; the average middle-quintile tax cut would be $30, while the top 0.1 percent would save about $141,000 on average.15Tax Policy Center. Repealing SALT Cap Would Overwhelmingly Benefit Those With High Incomes Brookings Institution researchers reached similar conclusions and called the deduction a “handout to the rich.”16Brookings Institution. The SALT Tax Deduction Is a Handout to the Rich
What Could Change Before 2030
The higher cap is not settled law for the rest of the decade in any political sense. Members of the House SALT Caucus, who forced the $40,000 figure into the original bill, have publicly warned the Senate not to reopen it. In June 2026, the administration reportedly offered SALT Caucus members a package valued at $200 billion, roughly 58 percent of the House bill’s $344 billion SALT provision, which included a lower income cap and reduced inflation indexing. Representatives Nick LaLota, Young Kim, and Mike Lawler rejected it.17The Hill. SALT Republicans Offer on Trump Bill
For planning purposes, the practical points are these: the $40,000 cap runs through 2029 on paper, the phase-down at $500,000 in income can eat most of the increase, and the $10,000 floor returns in 2030 absent further legislation. If you itemize and live in a high-tax state, the years between now and the scheduled reversion are when the higher deduction is available; whether it survives past 2029 is a question Congress has not answered.