SALT and the One Big Beautiful Bill

The "One Big Beautiful Bill Act" (OBBBA) enacted changes to the State and Local Tax (SALT) deduction that could be very good news for many, especially if you live in a high-tax state and itemize your deductions.

Here's how to think about it: Over the next few years, the government is significantly expanding the 'bucket' for your state and local tax deductions. While the standard deduction might still be your best option, this change makes it worthwhile to reassess your tax strategy and see if itemizing could now work in your favor.

What is the SALT deduction?

This deduction lets you write off a portion of the state and local taxes you pay, things like income taxes, property taxes, or sales taxes on your federal tax return. Under the old rules (from 2018 to 2024), the maximum you could deduct was $10,000.

What's changing in 2025?

Starting in 2025, the SALT deduction cap increases to $40,000 for most taxpayers.

• You have until 2029 to take advantage of the increase.

  
  

• The limit is scheduled to drop back to $10,000 in 2030, unless Congress changes it again.

  
  

• If you file as married separately, your cap is half of these amounts.

The high-earner cliff

There's a critical detail to be aware of: If your income is over $500,000, your SALT deduction starts to shrink.

For every extra dollar you earn above $500,000, you lose 30 cents of your SALT deduction. By the time your income reaches $600,000, your deduction reverts to the original $10,000 cap. This can lead to a significant change in your overall tax bill, so it's a key detail to monitor.

What you can do?

If you're in a high-tax state and your income is near or above $500,000, here are some strategies we should consider together:

• Time your income: If possible, defer income into a different year to stay under the critical $500,000 threshold.

• Max out pre-tax accounts: Contribute the maximum allowed to pre-tax retirement accounts like a 401(k) or HSA. This reduces your Modified Adjusted Gross Income (MAGI) and can help you stay below the phaseout levels.

  
  

• Bunch your deductions: A strategy we can review is "bunching" deductions. This means concentrating your deductible expenses into a single year, which makes it worthwhile to itemize, and then taking the standard deduction in other years. This is especially easy to do with charitable donations by using a donor-advised fund. Other examples: Medical and dental expenses, theft, casualty losses and mortgage interest.

  
  

• For business owners: Business owners have more options to manage income and expenses. If this applies to you, we should talk specifically about pass-through entity tax elections (PTET) and other business-specific strategies.

  
  

• Time your payments: For cash-basis filers, timing when you pay certain taxes can make a difference. If you have payments due in Q4 or Q1, you might push them into the year where your income is under $500,000.

Where we go from here

This higher deduction is a temporary opportunity, and the rules could change again. But for now, there's a clear window through 2029 to take advantage of it. If you are unsure how this affects you, or you live in a high-tax state, it's a great time to check in.

Looking ahead

If you're in a high-tax state or are approaching the new income limit, a review of your situation is recommended. Together we can create a plan to help you make the most of this new opportunity.