Taxpayers who have been paying increased property and other state and local taxes may find some relief following recent legislative changes under the “One Big Beautiful Bill Act.” The federal deduction for state and local taxes (SALT) will undergo significant adjustments starting in 2025. The SALT deduction is available to taxpayers who itemize their deductions instead of claiming the standard deduction.
Here is a breakdown of the changes:
- Starting in 2025 the SALT deduction cap will increase from $10,000 to $40,000. The cap will increase by 1% each year from 2026 – 2029.
- As the legislation is currently written, the SALT deduction cap will revert to $10,000 in 2030.
- The deduction begins to phase out for taxpayers with modified adjusted income above (MAGI) $500,000. The deduction is reduced by 30% of the amount of MAGI that exceeds $500,000.
- For example, if a taxpayer has $550,000 in MAGI in 2025, the maximum amount they can deduct for state and local taxes would be $25,000 (40,000 – 30% of $50,000).
- For taxpayers with MAGI greater than $600,000, the SALT deduction cap will be $10,000.
- For taxpayers who file married filing separately, the SALT deduction cap will increase from $5,000 to $20,000.
Taxpayers who paid a high amount of state and local taxes and took the standard deduction in 2024 due to the previous SALT cap may find it is more beneficial to itemize in 2025. Be sure to keep good records and talk to your tax preparer about what is more beneficial for you.
Here is a list of some of the deductible state and local taxes on your individual return:
- State income taxes
- Individual personal property taxes
- Real property taxes (for all property owned by the taxpayer)
- Sales taxes paid (based on IRS tables or actual sales tax paid)
- Sales taxes paid on vehicles, boats, homes, home building materials for a substantial addition or major renovation, etc.
