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Published: July 27, 2025
Modified: August 23, 2025
The One Big Beautiful Bill Act (OBBBA) introduces a major tax change: the OBBBA SALT deduction limit increase raises the cap on state and local tax (SALT) deductions from $10,000 to $40,000 for itemized filers. Effective from 2025 through 2029, this increase offers significant relief to taxpayers in high-tax states by allowing them to deduct more SALT expenses on their federal returns.
This increase offers meaningful tax savings, especially for residents of high-tax states, but the new limit phases out at higher income levels. Here’s how the expanded SALT deduction works and who stands to benefit most.
Key Takeaways
- The OBBBA raises the SALT deduction cap from $10,000 to $40,000 through 2029, with phaseouts for high earners.
- Starting in 2026, the cap increases slightly each year before reverting to $10,000 in 2030.
- Taxpayers with MAGI above $500,000 face a gradual phaseout of the increased deduction.
- Residents in high-tax states may see significant federal tax savings, if they qualify.
What Is the SALT Deduction?
The SALT deduction lets taxpayers who itemize subtract state and local taxes, such as income, property, and sales taxes, from their federal taxable income. Under the 2017 Tax Cuts and Jobs Act (TCJA), this deduction was capped at $10,000, hitting residents of high-tax states especially hard.
OBBBA Raises the Cap for Itemizers
The OBBBA expands the SALT deduction cap to $40,000 through 2029. This change is a major shift for taxpayers who itemize and live in states like California, New York, or New Jersey. The cap increases slightly over time, rising to $40,400 in 2026 and then growing 1% annually, before reverting back to $10,000 in 2030.
How the Phaseout Works
Not everyone can take full advantage of the higher cap. If your Modified Adjusted Gross Income (MAGI) exceeds $500,000, the SALT deduction increase starts to phase out. For every dollar your MAGI goes above that threshold, you lose 30 cents of the increased deduction.
Example: If your MAGI is $550,000, your extra deduction is reduced by $15,000 (30% of $50,000), leaving you with a $25,000 SALT cap. Once fully phased out, you fall back to the original $10,000 limit.
Who Benefits Most?
This expanded deduction primarily helps upper-middle-income taxpayers in high-tax states, especially those who pay substantial property or income taxes but don’t exceed the phaseout threshold. If you’ve been itemizing without much SALT relief since 2018, this might offer a welcome boost.
Should You Itemize Now?
With a higher SALT cap in place, more taxpayers may benefit from itemizing deductions instead of taking the standard deduction. But itemizing still makes sense only if your total deductions exceed the standard amount. Crunch the numbers or ask your tax preparer to run both scenarios.
Tax Planning Tips
To make the most of this change, consider the following tax tips:
- Adjust your withholding: If your tax bill will decrease due to the higher SALT cap, you may be able to reduce paycheck withholding and improve monthly cash flow.
- Time your property tax payments: Strategically paying property taxes in one calendar year may help you maximize your itemized deductions when it counts most.
- Bundle charitable contributions: Making two years’ worth of donations in one year can push your total deductions above the standard deduction threshold.
- Review other deductible expenses: Mortgage interest, medical expenses, and other itemized deductions may now put you over the threshold where itemizing becomes worthwhile.
When to Call a Pro
If your income is near the $500,000 mark or you’re unsure how the phaseout applies to you, a tax advisor can help you model the impact. Understanding exactly how much of the SALT deduction is available to you may influence other parts of your tax strategy as well.
Further Reading and Related Topics
For more insights into how tax law changes can affect your financial planning, you might find it helpful to explore Key 2025 Tax Changes to Plan for Right Now.
Additionally, understanding broader tax implications, such as those discussed in the One Big Beautiful Bill Act Tax Changes ↗, can further enhance your tax strategy.
Conclusion
The OBBBA gives taxpayers in high-tax states a window of opportunity: a significantly increased SALT deduction limit through 2029. But income-based phaseouts mean not everyone will benefit equally.
By understanding the new rules, reviewing your deductions, and seeking guidance if needed, you can make smarter choices and possibly lower your federal tax bill during the next few years.