Between 2018 and 2025, the Tax Cuts and Jobs Act (TCJA) capped the deduction for state and local taxes (SALT) at $10,000. This was a particularly large burden on homeowners in states with high taxes, including New York, California, and New Jersey.
Legislative Change: One Big Beautiful Bill Act (OBBBA)
Congress passed the One Big Beautiful Bill Act in July 2025 and it was signed into law. The law temporarily increases the SALT deduction cap for five years:
1. $40,000 cap for joint filers (and $20,000 for married filing separately) starting in tax year2025
2. Limits the cap to filers with Modified Adjusted Gross Income (MAGI) up to $500,000 (or $250,000 for separate filers)
3. Benefit phases down above those income levels until it returns to the old $10,000 level for high earners
How It Works: From 2025 to 2029
2025: SALT cap = $40,000; phase-out starts at MAGI $500,000 (joint), $250,000 (MFS)
2026–2029: The cap and phase-out threshold increase 1% per year — e.g., 2026 cap = $40,400, threshold = $505,000, etc., through 2029
2030 and after: The cap returns to $10,000 ($5,000 MFS), permanently, unless Congress revisits the issue
Who Benefits – and Who Doesn’t
- Homeowners who pay high property or state income taxes in high-tax states, especially if they itemize. Itemizers are the big winners here, because the raised cap means they can deduct much more of these items, assuming their income doesn’t phase it out.
- Married couples or single filers with an AGI of less than $500,000 (single filers with an AGI of less than $250,000). The full $40,000 deduction will be available for them through 2029.
Limited benefit for:
Single earners with high income (above phase out thresholds): the deduction phases down at a rate of 30% of excess income, bottoming out at $10,000 for very high incomes
Taxpayers who claim the standard deduction. For 2025, the law’s forecasted standard deductions are $31,500 (joint) and $15,750 (single); most such filers will not itemize
Table
| Tax Year | SALT Cap (Joint) | Phase‑Out Threshold (Joint) | Notes |
| 2025 | $40,000 | $500,000 | Full deduction then phases down |
| 2026 | $40,400 | $505,000 | Indexed 1% from prior year |
| 2027 | $40,804 | $510,050 | |
| 2028 | $41,212 | $515,151 | |
| 2029 | $41,624 | $520,302 | Last year of expanded cap |
| 2030+ | $10,000 | — | Cap returns to $10,000 for all |
Tax Planning Opportunities
California ranks high in median home price and state taxes. A homeowner paying $9,000/year in property taxes on a median-priced home will see the expanded SALT cap go up to $40,000 of deduction, versus the new-old limit. The expanded tax break would provide significant relief, especially for joint filers making less than $500,000 AGI
Fiscal Impact & Political Context
Table: SALT Cap & Phase‑Out Timeline
Real‑World Example: California Homeowners
Caveats & Considerations
- Itemization vs. Standard Deduction: Taxpayers must itemize to claim SALT deductions. Many will still find the standard deduction more beneficial.
- Phase-out complexity: Calculating the 30% phase down involves meticulous AGI tracking and planning.
- Temporary nature: Provision sunsets after tax year 2029 and reverts to the $10,000 cap in 2030, unless extended.
- Trust and entity risks: While legal, using trusts/entities requires meticulous planning, documentation, and understanding potential IRS scrutiny.
