The fight over the state and local tax deduction cap is back with full force. As millions of Americans file their 2025 returns this spring, the temporary $40,000 SALT cap signed into law last July is already stirring fresh debate about who it helps, who it leaves behind, and what happens when it snaps back to $10,000 in 2030. For homeowners in high-tax states, the stakes could not be higher.
What Changed Under the One Big Beautiful Bill
On July 4, 2025, President Trump signed the One Big Beautiful Bill Act (OBBB) into law, permanently extending and expanding upon provisions of the 2017 Tax Cuts and Jobs Act.1
For 2025, the legislation raised the federal deduction limit for state and local taxes, known as SALT, to $40,000, up from $10,000.2 The law then adjusts the cap to $40,400 for 2026, with a 1% annual rise through 2029 and a reversion to $10,000 in 2030.3
But this relief is temporary and comes with strings attached. The full deduction phases out for filers with modified adjusted gross income above $500,000 ($250,000 for married filing separately), and reverts to $10,000 for incomes of $600,000 and above.4
Here is a quick look at the new SALT cap schedule:
| Tax Year | SALT Cap | Income Phaseout Starts |
|---|---|---|
| 2025 | $40,000 | $500,000 |
| 2026 | $40,400 | $505,000 |
| 2027 | $40,804 | $510,050 |
| 2028 | ~$41,212 | ~$515,150 |
| 2029 | ~$41,624 | ~$520,302 |
| 2030 | $10,000 | No phaseout |
These changes will cost around $140 billion over 10 years relative to continuing TCJA’s $10,000 SALT cap.5
SALT deduction cap increase 2025 tax return high-tax states homeowners
Who Wins and Who Loses Right Now
The answer depends largely on where you live and how much you earn.
The primary beneficiaries of the higher SALT cap will be six-figure households in high-tax states, including New York, California, New Jersey, and Connecticut.5 Under the old cap, 14.7% of Illinois homeowners had property tax bills that exceeded $10,000, and in the Chicago metro area, that figure jumped to 21.8%.6
“A lot of what’s going to drive higher refunds [for 2025 returns] is the higher SALT cap,” said Andrew Lautz, director of tax policy for the Bipartisan Policy Center.2
However, most Americans will not see a difference. During tax year 2022, nearly 90% of returns used the standard deduction.2 The same year, about 15 million returns claimed the SALT deduction, which is fewer than 10% of filings.2
Low-income and middle-income households will likely not benefit from the SALT cap increase, given that most do not have $40,000 in SALT liability. Additionally, the large standard deduction generally outweighs any itemized deductions for most households with more modest income.5
Key Takeaway: If you earn under $200,000 and rent your home, the new SALT cap likely changes nothing for you. If you own a home in a high-tax state and earn between $200,000 and $500,000, you could save thousands.
The Political Battle That Shaped the Deal
This compromise did not come easy.
Initial House proposals would have increased the SALT deduction cap to $30,000. However, negotiations, driven in part by Republicans representing high-tax states, ultimately pushed the cap higher. Lawmakers including Representatives Mike Lawler and Nick LaLota argued that a lower threshold would continue to impose disproportionate tax burdens on residents in states with elevated income and property taxes.7
The Senate’s early version of the legislation took a different approach, proposing to restore the $10,000 cap. Continued negotiations produced a compromise framework.7
Rep. Nick LaLota called the final deal a hard-won victory. “This was a years-long battle, and I’m proud my colleagues finally came around to a plan that fixes the unfair $10,000 cap from 2017. Raising it to $40,000 means 92% of the families I represent will finally be made whole. For too long, Suffolk County’s middle class has been punished by double taxation.”8
On the other side, critics say the expanded cap still mostly helps the wealthy. For the richest 1% of Americans, the megabill’s version of the SALT cap basically claws back about a third of the tax cuts they would otherwise receive from the legislation. The other tax provisions in the megabill, on average, cut taxes for the top 1% by 3.7% of their income in 2026, but the SALT cap reverses that tax cut by 1.2% of income.9
Some lawmakers from high-tax states have argued that the cap unfairly penalizes their residents, while some conservatives see the deduction as a giveaway to upper-income taxpayers.10 This tension will only grow louder as 2030 approaches.
The Workarounds Business Owners Are Using
States have not waited for Washington to solve this problem. Many found their own path around the SALT cap years ago, and those workarounds remain alive today.
Business owners can bypass the SALT cap entirely by using Passthrough Entity Tax (PTET) elections, which remain fully deductible under federal law.11 PTET elections are enacted in 36 jurisdictions, with 26 states and localities, including New York State/City, New Jersey, and Connecticut, having enacted permanent PTET regimes.12
Here is what you need to know about the PTET workaround:
- How it works: The business entity pays state tax directly, then claims a federal deduction at the entity level, sidestepping the individual SALT cap.
- Who qualifies: Owners of S corporations, partnerships, and some LLCs in states that offer PTET elections.
- What changed: California’s statute was similarly set to expire but the state recently passed new legislation extending its PTET program for an additional five years.12
- What to watch: Illinois enacted major PTET legislation addressing the imminent expiration of its program. The Illinois PTET, originally enacted in 2021, was set to expire for tax years beginning on or after January 1, 2026. The new bill made the PTET program permanent by removing the sunset provision.13
If you own a pass-through business in a high-tax state, talk to your tax advisor about PTET before year-end. This remains one of the most powerful tools available.
What Happens When the Clock Runs Out in 2030
The biggest question hanging over this entire debate is simple. What happens next?
Continued debate around the SALT cap will almost certainly return in the coming years given its scheduled snapback to the $10,000 limit in 2030 and the relatively large budgetary impact that caps on the deduction yield.1 While the overall policy will raise nearly $1 trillion from fiscal years 2025 to 2034, it is the return to the $10,000 cap in 2030 which will raise the most revenues.1
The real estate industry is already sounding the alarm. The National Association of Realtors stated it “will continue to work to educate Congress over the next four years to show the need for a robust SALT deduction.”14
Studies have indicated that raising the SALT cap could increase homeownership rates and lead people to spend more on property purchases or renovations, thereby increasing property values.6 A return to $10,000 could reverse those gains overnight.
For the 15 million households who itemize, planning now is not optional. According to the Congressional Budget Office, the overall bill will increase deficits by $3.2 trillion over 10 years.5 That massive price tag means future Congresses may face pressure to let the higher cap expire without a fight.
The SALT cap story is far from over. For families in New York, California, New Jersey, Illinois, and beyond, this is not just a line on a tax form. It shapes where they can afford to live, what their home is worth, and how much of their paycheck actually stays in their pocket. With 2030 less than four years away, millions of taxpayers are watching Washington closely, hoping for certainty in a system that keeps handing them expiration dates. If this debate affects your family, let us know your thoughts in the comments below.
