newsMarketingTax Credit2025 SALT Deduction Cap Boosted to $40,000 — What Taxpayers Need to Know

Each year the Internal Revenue Service (IRS) adjusts critical sections of the tax code to reflect inflation, but tax law changes in 2025 go beyond inflation adjustments — including a major expansion of the State and Local Tax (SALT) deduction. These changes will affect how taxpayers who itemize on their federal returns calculate deductions for state and local taxes they’ve paid during the 2025 tax year, which you will file in 2026.

📈 What Changed: SALT Deduction Cap Increase

For tax year 2025, the SALT deduction cap has increased to $40,000 for taxpayers who itemize their deductions on Schedule A of IRS Form 1040. This is a significant increase from the previous $10,000 limit that had been in place since 2018.

The increase to $40,000 applies to:

  • Married filing jointly taxpayers (deduction up to $40,000)
  • Single taxpayers (up to $40,000)
  • Married filing separately (up to $20,000 per person) 

📅 When the Change Applies

This higher SALT deduction limit applies beginning with tax year 2025 — meaning your return filed in the 2026 tax season will reflect this cap. Under current law, this change continues through 2029 before reverting to the prior $10,000 cap in 2030 unless extended by Congress.

🧾 What Taxes Qualify for the SALT Deduction

The SALT deduction lets eligible taxpayers reduce their federal taxable income by the amount of state and local taxes they actually paid during the year (up to the applicable cap). Qualifying taxes include:

  • State and local income taxes
  • State and local sales taxes (if elected instead of income tax)
  • Property taxes you paid on real estate, vehicles, boats, and other qualifying property.

📉 Income Phase-Out Rules

The $40,000 SALT deduction is not automatic for all taxpayers — it’s subject to a phase-out based on Modified Adjusted Gross Income (MAGI):

  • The full $40,000 cap is available for taxpayers with MAGI of $500,000 or less.
  • For every dollar your MAGI exceeds that threshold ($500,000), the maximum SALT deduction is gradually reduced.
  • Once MAGI reach certain higher levels (typically around $600,000 for joint filers), the allowable SALT deduction may return to the previous $10,000 level.

This phased approach means high-income taxpayers may see more limited benefit from the higher SALT cap.

🧑‍💼 Who Benefits Most

This expanded SALT deduction primarily benefits taxpayers who:

  • Live in high-tax states (such as New York, California, and New Jersey)
  • Pay significant state income and property taxes
  • Have enough total itemized deductions (including mortgage interest and charitable contributions) that itemizing exceeds the standard deduction.

For many of these taxpayers, increasing the SALT cap to $40,000 could significantly lower their federal taxable income and reduce total tax liability.

📊 Example

Let’s say you and your spouse paid:

  • $25,000 in state income taxes, and
  • $15,000 in property taxes,

totaling $40,000 in state and local taxes.

Under the old cap, you could deduct only $10,000 of this amount on your federal tax return. Now, with the new $40,000 cap and assuming your income does not trigger a phase-out, you can deduct the full $40,000 — potentially lowering your taxable income by an additional $30,000 compared to prior years.

🧠 Planning Tips

  • Itemize deductions only if total itemized deductions (including SALT) exceed your standard deduction.
  • Keep thorough records of your state and local tax payments.
  • Consider income timing strategies — such as paying estimated state taxes early — to maximize your SALT deduction within the allowable limit.

📌 Final Thoughts

The temporary increase in the SALT deduction cap to $40,000 for tax year 2025 (filed in 2026) offers meaningful relief for many taxpayers, especially those in high-tax states. However, because the benefit phases down at higher income levels and is tied to itemizing, careful tax planning is essential to take full advantage of the change.