What the New SALT Cap Rules Mean for Businesses and Taxpayers
The One Big Beautiful Bill Act (OBBBA) makes several adjustments to the state and local tax (SALT) deduction. For those who itemize deductions, especially in higher tax states, the changes may offer some short-term benefits. However, they also come with limitations, income-based phaseouts, and a built-in expiration date.
Below is a breakdown of what these new rules mean and how they might impact planning for both individual taxpayers and business owners.
A Higher SALT Deduction Limit for 2025 Through 2029
Beginning in tax year 2025, the SALT deduction limit increases from $10,000 to:
- $40,000 for most filers, including married filing jointly, single, and head of household
- $20,000 for those filing as married filing separately
This increase applies from 2025 through 2029. The cap will also be indexed for inflation during those years. Starting in 2030, the deduction limit is scheduled to revert to its prior amount of $10,000, or $5,000 for married filing separately.
Phaseouts for Higher-Income Taxpayers
The new higher SALT deduction is not available to all filers in full. A phaseout begins at:
- $500,000 of modified adjusted gross income (MAGI) for joint filers
- $250,000 of MAGI for married filing separately
The cap is reduced by 30 percent of the amount by which MAGI exceeds the threshold. However, it will not drop below the original $10,000 cap (or $5,000 if filing separately).
For example, a couple filing jointly with $550,000 of MAGI would see their cap reduced by $15,000, leaving them with a $25,000 limit rather than the full $40,000.
Filing Status Still Matters
Filing status affects both the deduction limit and when the phaseout begins. A married couple filing separately starts with a lower cap and hits the phaseout threshold much sooner. For taxpayers near these thresholds, it may be worthwhile to run projections for both joint and separate filing to determine which offers the better tax outcome.
Itemizing vs. Standard Deduction
These SALT changes only benefit those who itemize. If the total of your itemized deductions is less than the standard deduction, there will be no net benefit from the increased SALT cap. However, for taxpayers with high property taxes or state income taxes, the new limit may make itemizing worthwhile again, especially for those in states with high tax rates like California, New York, or Illinois.
The Planning Window Is Brief
These changes are temporary and expire after 2029. Beginning in 2030, the deduction limit returns to $10,000. For those who are eligible for the higher cap, it may make sense to accelerate tax payments, charitable giving, or other deductible expenses into the 2025–2029 window.
Final Takeaway
The revised SALT cap under the OBBBA provides potential relief for taxpayers who have been limited by the $10,000 cap since 2018. However, the benefits are temporary and may be reduced or eliminated entirely for higher-income earners. Business owners and high earners should be especially mindful of phaseout thresholds, filing strategies, and whether itemizing makes sense in the years ahead.
Want to talk through how these changes may affect your tax plan? Contact your ShindelRock team to put a strategy together that’s right for you.