State and Local Tax Deduction 2025
The One Big Beautiful Bill Act (OBBBA) has made headlines for locking in several parts of the 2017 Tax Cuts and Jobs Act (TCJA) — but thankfully, not the old $10,000 cap on state and local tax (SALT) deductions. If you live in a high-tax state or pay substantial property taxes, this change could make a big difference in your bottom line.
What’s New in the SALT Deduction Limit
From 2025 through 2029, the OBBBA increases the SALT deduction cap to $40,000 for joint filers (and $20,000 for married filing separately). Starting in 2026, these limits will increase slightly each year for inflation. Unless Congress acts again, the cap will revert to $10,000/$5,000 in 2030.
How the Phase-Out Works
The full $40,000 deduction isn’t available to everyone. Beginning in 2025, the higher SALT limit starts to phase out for taxpayers with modified adjusted gross incomes (MAGI) over $500,000 (or $250,000 if married filing separately). For each dollar over that threshold, 30 percent reduces your deduction — but never below the minimum $10,000 cap.
Example 1
A married couple with $300,000 MAGI and $50,000 in property and income taxes can deduct the full $40,000 limit. That’s a win under the new law.
Example 2
If that same couple earns $550,000 MAGI, they lose part of the benefit: $40,000 – (30% × $50,000) = $25,000 SALT deduction. Still better than the $10,000 cap that existed before.
Example 3
At $700,000 MAGI, the 30 percent phase-out wipes away nearly all of the benefit, leaving only the $10,000 minimum deduction.
Sales Tax Option Still Available
Just like before, taxpayers can choose to deduct general sales taxes instead of state income taxes. This option benefits those with low or no state income tax liability but significant property or sales taxes.
SALT Workarounds for Pass-Through Entities
The OBBBA doesn’t touch the state-level SALT deduction workarounds many states have implemented for pass-through entities. Partnerships, S corporations, and LLCs taxed as partnerships can still pay their state income taxes at the entity level — allowing owners to bypass the individual SALT cap and deduct the payments as a business expense.
In short, pass-through SALT workarounds remain alive and well under the OBBBA, providing a major planning opportunity for small business owners.
How to Maximize Your SALT Deduction in 2025
- Manage your MAGI: Consider timing capital gains or Roth conversions across several years to stay under the $500,000 threshold.
- Leverage entity-level deductions: If your state allows a pass-through SALT workaround, make sure you’re taking advantage of it.
- Combine with other deductions: The OBBBA’s new senior bonus deduction and charitable giving opportunities can stack to reduce your taxable income even further.
Why This Matters
For high-income earners, real estate professionals, and small business owners in high-tax states, these changes offer a limited-time opportunity. Proper planning can mean thousands of dollars in additional deductions each year through 2029.
Ken-Mar Tax helps clients think beyond the numbers — strategically planning deductions, conversions, and timing to minimize taxes. If you want to make the most of the new SALT deduction limit for 2025 and beyond, contact Ken-Mar Tax today for expert tax planning that gets results.
Small Business Tax Services
As an expert in small business tax services and tax consulting Ken-Mar Tax eats, sleeps and breathes small business tax strategies. Being an enrolled agent allows founder, Ken Weinberg, to represent you to the IRS - something only a CPA, tax attorney and Enrolled Agent can do. EAs are the only federally licensed tax practitioners who specialize in taxation and also have unlimited rights to represent taxpayers before the IRS. It also means he is continuously being updated on the new IRS tax codes and taking classes from the IRS that provide guidance on how to file returns so that they are not "flagged."
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