SALT Deduction 2025: Cap Raised to $40,000 Under the OBBBA

Deductions · UPDATED 2025

The OBBBA raises the state and local tax (SALT) deduction cap from $10,000 to $40,000 for 2025. Here's who benefits most, income phase-outs, and how it affects your itemized deductions.

For years, taxpayers in high-tax states have been frustrated by the $10,000 cap on state and local tax (SALT) deductions imposed by the 2017 Tax Cuts and Jobs Act. The One Big Beautiful Bill Act dramatically raises that cap to $40,000 for tax year 2025, providing meaningful relief to millions of homeowners and residents in states like California, New York, New Jersey, Illinois, and Massachusetts.

What Is the SALT Deduction?

The SALT deduction allows taxpayers who itemize deductions to deduct state and local taxes paid during the year, including:

• State and local income taxes (or state sales taxes as an alternative)
• Real estate property taxes on your primary and secondary homes
• Personal property taxes (such as vehicle registration fees based on value)

Before 2018, the SALT deduction was uncapped. The TCJA capped it at $10,000 ($5,000 for married filing separately).

New Cap: $40,000 for 2025

Under the OBBBA, the SALT cap is raised to $40,000 for tax year 2025 (married filing jointly). The cap is adjusted for inflation in subsequent years. For 2026 and beyond, the SALT cap remains elevated before eventually adjusting back down — consult a tax professional for the exact amounts applicable to your filing year.

Income Phase-Out

The higher $40,000 SALT cap phases out at higher income levels. Once your modified adjusted gross income (MAGI) exceeds a threshold (approximately $500,000 for married filers), the cap begins to reduce back toward $10,000. Very high-income taxpayers may receive limited or no benefit from the increased cap.

You Must Itemize to Benefit

The SALT deduction only benefits taxpayers who itemize deductions on Schedule A. With the standard deduction raised to $31,500 for married filers and $15,750 for single filers, many taxpayers will still find the standard deduction exceeds their total itemized deductions — especially in lower-tax states. Taxpayers with significant state income taxes AND mortgage interest AND charitable contributions are the most likely to benefit from itemizing.

Married Filing Separately Warning

The SALT cap for married filing separately filers is half the MFJ cap. Married couples considering whether to file jointly or separately should model both scenarios, particularly when one spouse has significantly higher income or deductions.

Frequently Asked Questions

Does the $40,000 SALT cap apply to single filers?

The $40,000 cap applies to single filers as well as joint filers. Married filing separately is capped at half ($20,000).

Can I deduct both income taxes and property taxes?

Yes — your total combined state income taxes (or sales taxes) plus property taxes is deductible up to the $40,000 cap.

I live in a no-income-tax state. Does this help me?

Possibly. If you pay significant property taxes or state sales taxes, you may still benefit. You can deduct state sales taxes in lieu of income taxes.

Should I prepay my 2026 state taxes in 2025 to maximize the SALT deduction?

Prepaying state taxes to accelerate deductions requires careful planning — the rules about when prepayments are deductible are complex and an IRS crackdown on abusive SALT workarounds is ongoing. Consult an enrolled agent or tax attorney before attempting this strategy.