SALT Deduction: What the One Big Beautiful Bill Act Means for You

If you live in a high-tax state like New York, California, or Connecticut, the federal SALT (State and Local Tax) deduction has long been a hot topic. With the passage of the One Big Beautiful Bill Act (OBBBA) on July 4, 2025, taxpayers in these states may finally see some relief—at least temporarily.

What Is the SALT Deduction and Why Does It Matter?

The SALT deduction allows taxpayers to deduct state and local taxes—such as property, income, and sales taxes—from their federal taxable income.

Key Changes Under the One Big Beautiful Bill Act

Here’s what the new law does:

• Raises the SALT deduction cap from $10,000 to $40,000 starting in 2025.

• The cap increases by 1% annually through 2029, reaching approximately $40,800.

• Income-based phaseouts begin at $500,000 in modified adjusted gross income (MAGI), reducing the deduction by 30% of the excess income.

• Taxpayers earning $600,000 or more will see no benefit and remain capped at $10,000.

• The deduction is only available to those who itemize rather than take the standard deduction.

• The cap reverts to $10,000 in 2030.

  
  

Who Benefits Most?

The biggest winners are households earning under $500,000 who live in states with high property or income taxes. According to IRS data, states like New York, California, Maryland, and Connecticut have some of the highest average SALT deductions. These taxpayers are more likely to itemize and benefit from the increased cap.

Planning Considerations

• Itemizing may now be more beneficial than taking the standard deduction.