Are you wondering if the new SALT deduction changes mean you should finally start itemizing your taxes again?
Or whether the temporary increase under the One Big Beautiful Bill Act will actually lower your tax bill, especially if your expenses exceeds the old $10,000 cap?
This article breaks down what’s changed under the new law, how the deduction works based on your income, and who will benefit most from it.
You’ll learn how the phase-outs apply, what counts toward the SALT limit (and what doesn’t), and how to calculate your deduction with confidence, whether you’re filing solo or as a couple.
What Is the New SALT Deduction Under the OBBBA?
On July 4th, 2025, President Trump signed into law the One Big Beautiful Bill Act (“OBBBA”). One of the temporary provisions of the law allows qualifying individuals an increased State and Local Income Tax (“SALT”) deduction on Schedule A Itemized Deductions for tax years 2025 through 2029.
Who Qualifies for the Increased SALT Deduction?
The SALT deduction was limited to $10,000 for all taxpayers, but effective in 2025, the OBBBA temporarily increases the deduction for certain state and local income taxes, general sales tax in lieu of income taxes, real property taxes, and personal property taxes to $40,000 ($20,000 if married filing separately).
What Are the Income-Based Phaseouts for SALT Deductions?
This increased deduction does have phase-out limitations once the taxpayer’s modified adjusted gross income (“MAGI”) exceeds $500,000 ($250,000 if married filing separately). The deduction for tax years 2025 through 2029 will not be reduced to less than $10,000 ($5,000 if married filing separately). Beginning in 2030, the SALT deduction permanently reverts to $10,000 ($5,000 if married filing separately) regardless of the taxpayer’s MAGI.
In order to utilize the deduction, the taxpayer must itemize their deductions. With the OBBBA making permanent the suspension of personal exemptions and the increased standard deduction, many taxpayers will continue to find it more beneficial to take the standard deduction than to itemize, depending on other deductions in the return. The revised 2025 standard deductions are $15,750 for single and married filing separately; $31,500 for married filing jointly; and $23,625 for head of household. The standard deduction is adjusted each year for inflation. The decision to take the standard deduction or to itemize is made annually.
What Taxes Are Not Limited by the SALT Cap?
The SALT limitation does not apply to taxes directly attributable to an income-producing activity; therefore, taxpayers with a rental property with activity reported on Schedule E can deduct the full amount of the rental property’s real estate taxes, and it does not count towards the SALT limitation. Additionally, pass-through entity tax (“PTET”) enacted at the state level, allowing partnerships and S corporations to elect to pay the state income tax at the entity level, does not count towards the SALT limitation.
How Does the SALT Deduction Phase-Out Work?
For taxpayers whose MAGI falls between the maximum deduction threshold and the limited to $10,000 deduction threshold, the increased SALT deduction is subject to phase-out limitations. For every dollar over the MAGI for maximum deduction, the deduction is reduced by 30 cents.
Year-by-Year SALT Deduction and Income Threshold
| Tax Year | Maximum Deduction | MAGI for maximum deduction | MAGI for deduction limited to $10,000 |
| 2025 | $40,000 | $500,000 | $600,000 |
| 2026 | $40,400 | $505,000 | $606,333 |
| 2027 | $40,804 | $510,050 | $612,730 |
| 2028 | $41,212 | $515,151 | $619,191 |
| 2029 | $41,624 | $520,302 | $625,715 |
| 2030 and after | $10,000 | N/A | N/A |
Example 1: Joint Filers With MAGI Over Threshold
Cameron and Avery Smith are filing their 2025 tax return jointly, and their MAGI is $560,000. The MAGI limitation for the maximum deduction in 2025 is $500,000. Since the Smith’s MAGI exceeds this threshold by $60,000 ($560,000 less $500,000), their SALT deduction is reduced in 2025. To determine the reduction, the excess of $60,000 is multiplied by 30% for a reduction of $18,000. Therefore, their maximum SALT deduction for 2025 is $22,000 ($40,000 less $18,000). The Smiths have state withholding of $27,720 and real estate taxes of $7,500, for a total of SALT taxes paid or accrued of $35,220. Since the Smith’s total SALT taxes paid or accrued during the year are more than the maximum calculated deduction for their MAGI, the allowable amount to be reported on Schedule A is $22,000.
Example 2: Married Filing Separately With Uneven MAGI
Rowan and Riley Doe are filing their 2025 tax return separately, and their combined MAGI is $560,000. Rowan’s MAGI is $250,000, and Riley’s MAGI is $310,000. They must separately calculate any reduction they may have to the maximum deduction. For taxpayers married filing separately, the MAGI limitation for the maximum deduction in 2025 is $250,000.
Since Rowan’s MAGI equals this threshold, the SALT deduction is not reduced in 2025; therefore, the maximum deduction for Rowan in 2025 is $20,000. Rowan has state withholding of $12,375 and real estate taxes of $3,750, for a total of SALT taxes paid or accrued of $16,125. Since Rowan’s total SALT taxes paid or accrued during the year are less than the maximum calculated deduction for their MAGI, the allowable amount to be reported on Schedule A is $16,125.
Riley’s MAGI of $310,000 exceeds the maximum MAGI for phaseout of $300,000 for married filing separately; therefore, the maximum deduction for Riley in 2025 is $5,000. Riley has state withholding of $15,345 and real estate taxes of $3,750, for a total of SALT taxes paid or accrued of $19,095. Since Rowan’s total SALT taxes paid or accrued during the year are more than the maximum calculated deduction for their MAGI, the allowable amount to be reported on Schedule A is $5,000.
Example 3: Single Filer With Partial Phaseout
Parker Jones is filing as single in 2025, and Parker’s MAGI is $530,000. The MAGI limitation for the maximum deduction in 2025 is $500,000. Since Parker’s MAGI exceeds this threshold by $30,000 ($530,000 less $500,000) Parker’s SALT deduction is reduced in 2025. To determine the reduction, the excess of $30,000 is multiplied by 30% for a reduction of $9,000. Therefore, their maximum SALT deduction for 2025 is $31,000 ($40,000 less $9,000). Parker has state withholding of $26,235 and no additional SALT taxes for 2025. Since Parker’s total SALT taxes paid or accrued during the year are less than the maximum calculated deduction for their MAGI, the allowable amount to be reported on Schedule A is $26,235.
Key Takeaways on the New SALT Deduction Rules
The OBBBA did not change the type of taxes that qualify for the SALT deduction. It only increased the allowable deduction beginning in 2025 from $10,000 to $40,000 for qualifying taxpayers. Taxpayers can still take advantage of the PTET deductions at the entity level and business-related taxes without it counting towards the SALT limitation.
Keep in mind that the SALT deduction is added back in determining Alternative Minimum Taxable Income, and with the accelerated claw-back provision (effective in 2026), more taxpayers will be subject to alternative minimum tax.
As more individuals are eligible to deduct SALT taxes on Schedule A, they need to keep in mind that if they receive a refund in a subsequent year for amounts that were deducted to reduce taxable income in a prior year that the refund becomes taxable income in the year received. This is not a new rule, but one that not many individuals have encountered with the SALT limitation being set at $10,000 since 2018.
