If you typically pay more than $10,000 in state and local taxes (SALT), the One Big Beautiful Bill Act (OBBBA) could significantly reduce your 2025 federal tax bill. But to take full advantage, you’ll need to understand the income-based limits and consider some strategic moves before year-end.
What’s Changing: A Higher SALT Deduction Limit
SALT deductions include property taxes (on homes, vehicles, and boats) and either state income tax or sales tax—but not both. Before 2018, these expenses were fully deductible for taxpayers who itemized.
That changed with the Tax Cuts and Jobs Act (TCJA), which capped the SALT deduction at $10,000 ($5,000 for married filing separately). This cap was set to expire after 2025.
Instead of letting it lapse, the OBBBA temporarily raises the cap to $40,000 starting in 2025 ($20,000 for separate filers), with a 1% annual increase through 2029. In 2030, the cap reverts to $10,000.
Example: How Much Could You Save?
A single filer in the 35% tax bracket with $40,000 in SALT expenses could save an extra $10,500 in federal taxes:
35% × ($40,000 − $10,000) = $10,500
Income-Based Phaseout: Know the Thresholds
The expanded deduction isn’t available to everyone. If your modified adjusted gross income (MAGI) exceeds $500,000 in 2025 ($250,000 for separate filers), your deduction begins to shrink.
The reduction equals 30% of the amount by which your MAGI exceeds the threshold. Once your MAGI hits $600,000, the deduction is capped at $10,000 again.
Example: Reduced Deduction for High Earners
If your MAGI is $550,000—$50,000 over the threshold—your deduction is reduced by $15,000:
30% × $50,000 = $15,000
That leaves you with a $25,000 SALT deduction, still more than double the original $10,000 cap. At a 35% tax rate, that’s a $5,250 tax savings.
Should You Itemize or Take the Standard Deduction?
The SALT deduction is only available to those who itemize. The TCJA nearly doubled the standard deduction, reducing the number of itemizers. Under OBBBA, the standard deduction increases again in 2025:
- Single/Married Filing Separately: $15,750
- Head of Household: $23,625
- Married Filing Jointly: $31,500
If your SALT and other itemized deductions (like mortgage interest, medical expenses, and charitable contributions) exceed your standard deduction, itemizing could save you more.
Year-End Tax Planning Strategies
1. Lower Your MAGI
If your income is near or above the phaseout threshold, consider:
- Increasing pretax retirement contributions
- Boosting Health Savings Account (HSA) deposits
- Avoiding Roth conversions or large capital gains
2. Prepay Property Taxes
If your SALT expenses are under $40,000 and your MAGI is below the threshold, you might prepay your 2026 property taxes in 2025—provided the bill has already been assessed.
Watch Out for the AMT
SALT deductions aren’t allowed under the Alternative Minimum Tax (AMT). A large SALT deduction could inadvertently trigger the AMT, especially after 2025. Be sure to factor this into your planning.
Final Thoughts: Plan Now to Maximize Your Deduction
The temporary increase in the SALT deduction cap offers a valuable opportunity for tax savings—but only with careful planning. If you’re unsure how the new rules apply to your situation, consult a tax advisor to develop a personalized strategy.