What is the SALT Deduction? How does it affect my taxes?
October, 13 2025 by Veselina Arangelova, EA
What’s Changing with the SALT Deduction? A Simple Guide to the One Big Beautiful Bill Act of 2025
The One Big Beautiful Bill Act of 2025, signed into law on July 4, 2025, brought several updates to the U.S. tax system. One of the most talked-about changes is the increase in the SALT deduction cap. If you’ve never heard of SALT in the context of taxes, don’t worry—it has nothing to do with seasoning your food. SALT stands for State and Local Taxes, and this blog will break down what the deduction is, what changed, and how it might affect you or your family.
What Is the SALT Deduction?
The SALT deduction lets people subtract certain taxes they pay to their state or local government—like income taxes or property taxes—from their federal taxable income. Depending on how much you paid in taxes, this could potentially reduce the amount of income the IRS taxes you on.
For example, if you earned $100,000 and paid $15,000 in state and local taxes, you could deduct that $15,000—so the IRS would only tax you on $85,000. But there’s a catch: there’s a limit to how much you can deduct.
What Was the Rule Before?
Since 2018, the SALT deduction was capped at $10,000 per year for individuals and married couples filing jointly ($5,000 per year for married couples filing separately). This rule came from the Tax Cuts and Jobs Act of 2017. It didn’t matter if you paid $15,000 or $30,000 in state and local taxes—you could only deduct up to $10,000.
This cap hit people in high-tax states the hardest. States like California, New York, and New Jersey have higher income and property taxes, so many residents were paying much more than $10,000 in SALT but couldn’t deduct the full amount.
What Changed in 2025?
With the One Big Beautiful Bill Act of 2025 now signed into law, the SALT deduction cap has generally quadrupled. Starting with tax year 2025:
- Married couples filing jointly can deduct up to $40,000
- Married couples filing separately can deduct up to $20,000
- Individuals (including Head of Households, and Qualifying Surviving Spouses) can deduct up to $40,000
There are some limitations in place. The $40,000/$20,000 SALT deduction amounts will phase out if your modified adjusted gross income (MAGI) exceeds $500,000 ($250,000 for married couples filing separately) in 2025. Additionally, the phase-out of the SALT deduction cannot go below $10,000/$5,000 as under prior tax law.
This change is set to last through 2029, unless Congress decides to change it again.
(Something important to note: It is important not to confuse modified adjusted gross income (MAGI) with adjusted gross income. There is a difference between the two. Your MAGI is an amount higher than your adjusted gross income (AGI). It includes amounts that otherwise may be excluded for the calculation of federal tax owed but need to be added back for the calculation of certain credits and deductions. For example, if you’ve lived and worked abroad and excluded income and housing expenses to calculate your federal taxes owed, you’ll need to add the excluded amounts back to your AGI to calculate how much of SALT deduction you qualify for. Certainly, the AGI to MAGI calculation is not something you do alone; all of the available tax preparation software on the market does this automatically without you knowing.)
Why Does This Matter?
This change could mean lower federal taxes for people who pay more than $10,000 in state and local taxes. For many who do, this could be the difference between taking the standard deduction or itemizing their expenses. Let’s look at a simple example:
Example: Meet Alex and Jordan
Alex and Jordan are a married couple living in California. They own a home and both work full-time. In 2024, they paid:
- $18,000 in state income taxes
- $12,000 in property taxes
That’s a total of $30,000 in SALT. Under the old rule, they could only deduct $10,000 as a married couple, so they missed out on deducting $20,000 of taxes they actually paid.
In 2025, with the new rules in place, they can deduct the full $30,000 (since it’s under the new $40,000 cap). That means they’ll be taxed on $20,000 less income than they were last year. Depending on their tax bracket, this could save them several thousand dollars.
Who Benefits Most?
This change mostly helps:
- People who itemize deductions (instead of taking the standard deduction)
- People who live in high-tax states
- Homeowners who pay high property taxes
- Families with moderate to high income
If you take the standard deduction, this change won’t affect you. But if you itemize and your SALT payments are over the old $10,000 cap, you’ll likely see a benefit.
What Should Taxpayers Do?
Here are a few tips to keep in mind:
- Review your 2025 tax situation: If you live in a high-tax state, check whether itemizing your deductions makes more sense than taking the standard deduction.
- Talk to a tax professional: They can help you figure out the best strategy for your situation.
- Keep good records: Save receipts and statements for property taxes, state income taxes, and any other local taxes you pay.
- Plan ahead: If you’re thinking about buying a home or moving to a different state, this change might influence your decision.
Final Thoughts
The increased SALT deduction cap is one of the more taxpayer-friendly changes in the One Big Beautiful Bill Act of 2025. It gives more room for people to deduct the taxes they already pay, which could lead to lower federal tax bills—especially for those in high-tax states.
While this change won’t affect everyone, it’s a good example of how tax laws can shift and impact everyday decisions like where to live, whether to buy a home, and how to file your taxes. Staying informed and planning ahead can help you make the most of these updates.
