Under the new “Big Beautiful” 2025 tax bill, the deduction for the money you pay on State and local taxes is no longer capped at $10,000; it has been temporarily raised to $40,000 for tax year 2025. The new cap phases out gradually for individuals with Modified Adjusted Gross Income (MAGI) above $500,000. Other important details:
• The full $40,000 deduction phases out for those with incomes over $500,000, and the phaseout rate is 30% above that threshold.
• It reverts to $10,000 once MAGI exceeds ~$600,000.
• The cap increases by 1% annually through 2029 (e.g., $40,400 in 2026, $41,624 in 2029).
• In 2030 and beyond, the SALT cap will revert to $10,000 unless further legislative changes are made.
• The deduction cap is $20,000 for married filing separately.
If a taxpayer can fully utilize the new maximum SALT deduction in 2025, they can deduct up to $40,000 of state and local taxes from their federal taxable income, up from the previous $10,000 limit. This provides an additional $30,000 in deductible expenses.
The actual federal income tax savings depends on the taxpayer’s marginal tax rate. For example, at a 37% marginal tax rate (the top federal bracket for 2025), the extra $30,000 deduction results in a savings of approximately $11,100 in reduced federal income tax liability. Only taxpayers who itemize deductions (rather than taking the standard deduction) can benefit.
Around our region it’s still very easy to exceed the new $40,000 cap when you consider State income taxes and property taxes combined. However, I’m sure most of us still welcome the savings.
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