Key takeaways
-
The massive new tax law temporarily boosts the maximum amount you can claim under the state and local taxes (SALT) deduction to $40,000, from $10,000, starting in 2025. (For those who are married filing separately, the new cap is $20,000, up from $5,000)
-
The SALT deduction lets taxpayers who itemize deduct a variety of state and local taxes, including property and income taxes. While you can claim different types of state taxes under this deduction, you must choose between deducting state income and state sales taxes — you can’t deduct both in the same year.
-
A valuable workaround that some businesses — specifically, pass-through entities such as partnerships and S corporations — can use to avoid the SALT cap was preserved in the new tax law.
The sweeping new tax law that President Donald Trump signed into law on July 4 includes a valuable, but temporary, boost to the state and local tax (SALT) deduction: Taxpayers can now write off up to $40,000 in state and local taxes ($20,000 if married filing separately). The new cap is in effect for five years, starting with the 2025 tax year.
A $10,000 cap had been in place since 2018, thanks to the Tax Cuts and Jobs Act of 2017 (it was a $5,000 limit for married couples filing separately). That cap helped offset some of the lost revenue from the TCJA tax cuts, but it was a big hit to taxpayers in high-tax states like California, New York and New Jersey. Taxpayers with significant state income and property taxes could only deduct $10,000 — before the TCJA, there was no cap on the SALT deduction.
In recent months, with the $10,000 cap set to expire at the end of this year, lawmakers fiercely debated what would come next. One early version of the tax bill called for a permanent cap of $40,000; another version would have locked in the $10,000 cap. After heated negotiations in Congress, the final law landed somewhere in the middle: A $40,000 cap — but only for five years.
The new law “is definitely more generous than under the TCJA, given that Congress increased that SALT cap limit to $40,000 for the next five years,” says Christian Burgos, director of tax services at Berkowitz Pollack Brant.
Here’s how the new rules work and, if you itemize on your taxes, how you may be able to take advantage of the SALT deduction to reduce your taxable income and thus lower your tax bill.
Learn more: Trump’s tax law: What the megabill means for your money
What is the SALT deduction?
The SALT deduction is a federal tax perk that allows taxpayers to write off the money they spend on state and local taxes, including property and income or sales taxes.
Thanks to the new tax law, the amount you can deduct is now capped at $40,000 for 2025 ($20,000 if you’re married filing separately). From 2026 through 2029, that cap will rise by 1 percent per year.
For example, in 2026 the deduction will be worth $40,400. In 2030, the cap goes back to $10,000 ($5,000 if married filing separately).
The deduction will phase out for taxpayers with modified adjusted gross income of $500,000 or more ($250,000 or more if married filing separately). That income limit will increase by 1 percent per year until 2030; for example, it will be $505,000 in 2026. But no matter how high a taxpayer’s income is, the value of the tax deduction won’t go below $10,000.
The new law also includes a limitation on itemized deductions for higher-income taxpayers. This is a complicated rule, but here’s the gist: The amount of itemized deductions a taxpayer can claim is reduced by 2/37 of the lower of either the taxpayer’s total itemized deductions or the amount of that person’s taxable income that exceeds the start of the 37 percent tax rate bracket. (In 2025, the 37 percent tax bracket starts at $626,350 for single filers and $751,600 for those who are married filing jointly.)
But the new law also allows for a tax perk that has helped the owners of some businesses avoid the SALT cap. After the TCJA instituted the $10,000 SALT cap, many states responded with a workaround for certain types of businesses. Pass-through entities — called that because the business’s income flows through to the individual taxpayer’s tax return — were allowed to reduce business income by the amount of their state and local taxes, effectively allowing business owners to avoid the SALT cap.
Currently, 36 states offer a so-called “PTET” (for “pass-through entity tax”) workaround, Burgos says. Some earlier versions of the tax megabill looked to curtail that type of tax strategy, but the final bill contained no such limitation.
If a taxpayer has income from a pass-through entity and lives in a state that offers this type of tax strategy, then state taxes “would be deductible through that workaround mechanism,” Burgos says.
Learn more: Find your state’s income and sales tax rates
How to claim the SALT deduction
The types of taxes covered by the SALT deduction are state and local property taxes, income taxes and sales taxes. But you must choose between income and sales taxes — you can’t deduct both in the same year.
For example, people who live in states with no income taxes likely would choose to deduct sales taxes rather than state income taxes, and someone in a high-income-tax state likely would benefit from claiming the SALT deduction for state income taxes. (Certain state and local taxes can’t be deducted, including those spent on gasoline, car inspection fees and licensing fees. See this IRS page.)
Also, while the SALT deduction can reduce your tax burden, you must itemize to take advantage of it — and it generally only makes sense to itemize if your deductible expenses exceed the standard deduction.
The number of taxpayers who itemize has dropped in recent years, mostly because the Tax Cuts and Jobs Act — the same law that originally limited the SALT deduction to $10,000 — nearly doubled the standard deduction for individual filers.
As a result, many taxpayers find it more cost-effective to claim the standard deduction rather than itemize their deductions. Fewer than 10 percent of taxpayers itemized their deductions in 2022, according to the most recent IRS data.
Learn more: Standard deduction vs. itemized deductions: How to decide
The new tax law slightly increased the standard deduction amounts that had been in place for 2025: Now the standard deduction is worth $15,750 for single filers, $23,625 for head of household filers and $31,500 for married fling jointly filers. Those higher amounts make it even less likely that taxpayers will itemize.
And older taxpayers have even less reason to itemize these days. Thanks to the new law, some taxpayers aged 65 or older will now qualify for an extra $6,000 bonus standard deduction, on top of the regular standard deduction. This bonus deduction is in effect from 2025 through 2028, and starts to phase out at adjusted gross income of $75,000 for single filers and $150,000 for married-filing-jointly couples.
Learn more: Current tax brackets and federal income tax rates
