If the $10,000 cap on state and local tax (SALT) deductions has limited your write-offs, the One Big Beautiful Bill Act (OBBBA) brings welcome relief starting in 2025.
Higher Deduction Limits
From 2025 through 2029, you may deduct up to:
- $40,000 if married filing jointly
- $20,000 if married filing separately
The limits adjust annually for inflation beginning in 2026. Unless extended by Congress, the cap reverts back to $10,000/$5,000 in 2030.
The Income Phaseout
There's a catch: the increased deduction phases out if your modified adjusted gross income (MAGI) exceeds:
- $500,000 for joint filers
- $250,000 for married filing separately
The phaseout reduces your SALT deduction by 30 percent of MAGI in excess of the threshold, with a floor of $10,000 or $5,000. For example, if your MAGI is $550,000 as a joint filer, you can deduct only $25,000 of your SALT, not the full $40,000.
Flexibility Remains
You can still choose to deduct sales taxes instead of income taxes—helpful if your income taxes are low but sales or property taxes are high.
Importantly, state-level SALT deduction workarounds for pass-through entities (S corporations, partnerships, or LLCs) remain in place. These allow business entities to pay SALT at the entity level and pass through the deduction to owners, effectively bypassing the federal cap.
Planning Opportunities
To maximize your deduction, consider managing your MAGI by:
- Spreading capital gains over multiple years
- Staging Roth IRA conversions
- Leveraging your state's SALT workaround, if available
The Bottom Line
From 2025 through 2029, OBBBA significantly increases the SALT deduction limits, creating new opportunities for tax savings. With careful planning, you may be able to claim deductions far above the old $10,000 cap—while keeping your MAGI within favorable ranges.