The SALT cap just went from $10,000 to $40,000. But the fine print includes a phaseout that creates one of the steepest effective tax rates in the code.
What Qualifies as SALT
Three categories of state and local taxes can be deducted on Schedule A:
- Property taxes on real and personal property
- State income taxes (including estimated payments)
- General sales taxes: as a substitute for income taxes, not in addition
You must choose income taxes or sales taxes, not both. Taxpayers in states without income tax (Texas, Florida, Washington) can use the IRS Optional Sales Tax Tables. You must itemize to claim SALT.
The New Cap: 2025–2030
SALT Cap Schedule
Year by Year2025: $40,000 ($20,000 MFS)
2026: $40,400 (+1%)
2027: $40,804 (+1%)
2028–2029: Continues at +1% per year
2030 and beyond: Reverts to $10,000 permanently unless Congress acts
The Phaseout
Above $500,000 MAGI, the cap reduces by $300 for every $1,000 of excess income. The floor is $10,000, so anyone at $600,000+ gets the same cap as under the old TCJA rules.
Cap at Various Income Levels
2025 MAGI≤ $500,000 → $40,000 (full)
$520,000 → $34,000
$540,000 → $28,000
$560,000 → $22,000
$580,000 → $16,000
≥ $600,000 → $10,000 (floor)
The phaseout threshold is not doubled for joint filers, so both single and MFJ face the same $500,000 trigger.
The SALT Torpedo: 45.5% Effective Rate
Each extra dollar of income in the phaseout band doesn't just add $1 to taxable income. It also reduces your SALT deduction by $0.30, adding another $0.30 to taxable income. Total: $1.30 taxable per $1 earned. At the 35% bracket, that's a 45.5% effective marginal rate.
Example: A $100,000 bonus pushes MAGI from $500K to $600K. You lose $30,000 of SALT deduction. Taxable income rises by $130,000. At 35%, that's $45,500 in tax on a $100K bonus.
Planning Strategies
Control MAGI below $500K. Maximize pre-tax retirement contributions (401k, SEP-IRA, defined benefit plan), harvest capital losses, avoid discretionary Roth conversions. Each $1,000 below $500K preserves $300 of SALT deduction.
Use PTET if you're a business owner. State taxes paid at the entity level through a pass-through entity tax election bypass the SALT cap entirely. Even with the $40K cap, PTET remains essential for owners whose state taxes exceed that amount or who are in the phaseout.
Prepay assessed property taxes. If your 2026 property taxes are already assessed and billed by December 31, 2025, you can prepay and claim them in 2025, locking in the $40K cap year.
Bundle charitable giving with SALT. If SALT alone pushes you into itemizing territory, stack a donor-advised fund contribution in the same year to maximize the benefit of the $40K cap window.
AMT Warning
SALT is not deductible for AMT purposes. If you're subject to AMT, the entire SALT deduction gets added back. Run AMT analysis before building a strategy around a large SALT deduction.
State Conformity
Many states don't automatically adopt OBBBA provisions. New Jersey confirmed non-conformity. California and New York have their own starting points. State-by-state analysis is required.
The 2030 Sunset
This is temporary. Without new legislation, SALT reverts to $10,000 in 2030. The 2025–2029 window creates real planning opportunities: accelerate state tax payments, structure asset sales, and build charitable strategies around years of maximum deductibility.
Contact TS CPA to model the phaseout impact on your specific situation.