The SALT Deduction Cap Just Quadrupled. What It Means for Your Federal Tax Return
For several years, the most common frustration we’ve heard from clients, particularly homeowners in high-tax states and counties such as Cook County, has been the federal deduction for state and local taxes. That’s changing, at least temporarily. What happened, and what it means for you?
The Old Rule: A $10,000 Ceiling.
Under the Tax Cuts and Jobs Act of 2017, taxpayers who itemized their deductions were supposed to deduct no more than $10,000 in combined state and local taxes (SALT) on their federal return (property taxes plus state income tax). For taxpayers living in higher-tax states, or those with substantial property tax bills, this cap often meant paying real estate and income taxes that were only partially deductible or not deductible at all for tax purposes after the $10,000 threshold.
The New Rule: A Temporary Jump to $40,000.
The One Big Beautiful Bill Act (OBBBA) was signed into law in July 2025 and it changes that cap by a lot, but how much this has to do with the details is more important than the headline number.
Key points:
The cap rises to $40,000 for the 2025 tax year (retroactive to January 1, 2025) up from $10,000. It increases every year through 2029 by 1% annually, so it might rise to about $40,400 for 2026 and $41,600 by 2029. It’s temporary. Without further legislation, the cap goes back to $10,000 starting in 2030. In 2025, the $40,000 cap will begin dropping when a taxpayer’s modified adjusted gross income (MAGI) is greater than $500,000. The reduction is 30% of income above that level, although the deduction can never come down below $10,000. And the thresholds also rise by about 1% per year through 2029. And it only helps those who itemize. The SALT deduction is available only to those who itemize deductions on Schedule A, and do not take the standard deduction. This is a very important qualifier because a large percentage of taxpayers take the standard deduction and see no change in their federal tax situation due to this law, irrespective of how much SALT they paid.
Who Actually Benefits Most
Based on the structure of the phase-down, the taxpayers who will see the biggest reduction in their federal tax bill are generally those with:
– income below the $500,000 MAGI threshold, and
– combined state, local, and property tax bills that exceed $10,000 but fall within the new $40,000 ceiling, and
– have enough itemizable deductions (mortgage interest, charitable giving, SALT, etc.) to make itemizing worthwhile compared to the standard deduction.
For many households in higher-tax jurisdictions, such as much of the Chicago metro area, this can translate into a meaningful reduction in federal taxable income for 2025 through 2029.
One Note of Caution
It is worth being precise about the scope of this relief. It is not a restoration of “full deductibility” for every taxpayer for two reasons:
- Itemization is necessary. If your total itemizable deductions are not greater than the standard deduction, it will make no difference to your return.
- The relief is temporary and income limited. High earners above the $500,000 MAGI threshold will see a reduced benefit, and the entire provision is currently set to sunset after 2029.
In Concluding
If you own real estate, pay significant state income tax, or both, this is a good time to re-evaluate your itemization strategy with your accountant or tax advisor, because you haven’t itemized in recent years because the old $10,000 cap made it not worth the trouble. This is also a good time to ensure that your property tax assessment accurately reflects your property’s value and, now, potentially a larger deduction in the form of a lower tax bill.
If you have questions about how this change affects your specific situation, or if you’d like a review of your property tax assessment, we’re happy to help.
* This article is intended for general information only and not to give tax or legal advice. Please consult a qualified tax professional or lawyer about your situation.
