New SALT Deduction Expansion: What the Higher Cap Means for Taxpayers

On July 4, 2025, the President signed into law the domestic spending and tax reform package known as the One Big Beautiful Bill Act.

One piece of this legislation is the expansion of the state and local tax (SALT) deduction. Many taxpayers are wondering what a higher cap could mean for their wallets. This change will quadruple the current SALT deduction limit for five years starting in 2025 — a significant shift with uneven impacts across income brackets and regions. Here’s a clear look at what the change would do and who stands to benefit the most.

Background:
The SALT deduction is a tax break that lets taxpayers deduct what they’ve paid in state and local taxes (like income tax, property tax, and sometimes sales tax) from their federal taxable income.

In 2017, the Tax Cuts and Jobs Act capped this deduction at $10,000 per year for individuals or married couples filing jointly. This cap has been controversial, especially in high-tax states (like New York, New Jersey, and California) where taxpayers often pay much more than $10,000 in state and local taxes.

What this new provision does:
The new bill will temporarily raise the cap — quadrupling it — for five years starting in 2025. So instead of being limited to $10,000, taxpayers can deduct up to $40,000 in state and local taxes.

In short:
From 2025 through 2029, taxpayers can now deduct up to $40,000 in state and local taxes paid each year, reducing their federal taxable income and potentially lowering their federal tax bill. After five years, the cap will revert back to $10,000 unless extended or changed again.

Who benefits?

📍 1. Higher-income households in high-tax states

The people who get the biggest boost are upper-middle and high-income taxpayers who:

• Pay significant state income taxes, property taxes, or both.

• Live in states with high tax rates (like California, New York, New Jersey, Connecticut, Massachusetts, and Oregon).

• Have enough total deductions to itemize instead of taking the standard deduction.

Example:
A couple in New Jersey who pays $25,000 in state income taxes and $15,000 in local property taxes currently can only deduct $10,000 of that from their federal income taxes. They can now deduct the full $40,000 instead of being limited — lowering their taxable income by an extra $30,000.

📍 2. Homeowners with high property taxes

Even in states with moderate income taxes, people who own expensive homes (and pay high property taxes) benefit. This is why many suburban homeowners in states like Illinois, Texas (which has high property taxes but no state income tax), or parts of the Midwest could see savings too — if their total state and local tax bill pushes them above the old $10,000 cap.

📍 3. Taxpayers who already itemize deductions

The SALT deduction only matters for people who itemize deductions on their federal taxes instead of taking the standard deduction (which is about $14,000–$29,000 for 2024, depending on filing status).

• Higher earners are more likely to itemize because they have bigger deductions (mortgage interest, charitable donations, medical expenses, plus SALT).

• Middle- and lower-income taxpayers usually take the standard deduction, so they wouldn’t see much impact.

Who doesn’t benefit much?

• Renters in low-tax states.

• Homeowners whose total SALT bill is already below $10,000.

• Taxpayers who don’t itemize.

✅ Big picture

The main benefit goes to wealthier households in high-tax, often coastal or urban states — which is why the SALT cap has been politically contentious. Critics argue raising the cap mostly helps the well-off, while supporters say it protects taxpayers from “double taxation” and helps keep high-cost states affordable for middle- and upper-middle-income professionals.