SALT deduction 2025 tax changes: What you need to know
Nerre Shuriah
JD, LLM, CM&AA, CBEC® | Senior Director of Wealth Planning and Knowledge
First Citizens Wealth INTEL: Insights and News—Taxation, Election & Legislation
Each month, we'll cover time-sensitive updates on tax, election and legislation developments that could affect you.
The One Big Beautiful Bill Act, or OBBBA, signed into law July 4, 2025, addresses a variety of provisions. Because of the potential for significant tax advantages, we'll focus on one specific component of OBBBA: the increase in the state and local tax, or SALT, deduction cap and the effect it may have on your personal and business tax liability.
Who is impacted
Under the OBBBA, the SALT deduction cap increases from $10,000 to $40,000 for individuals and $20,000 each for married couples filing separately. This increase applies to taxpayers with adjusted gross incomes, or AGI, under $500,000. For taxpayers with AGIs over $500,000, the SALT cap is reduced by 30% of the amount they exceed the threshold. The cap will never drop below $10,000, regardless of AGI levels.
There's also an annual inflation increase of 1% for the cap as well as the threshold. It's important to note that this SALT deduction cap increase is temporary because it only applies to the tax years 2025 through 2029. In 2030, the cap reverts back to $10,000 per individuals, and $5,000 for separate filers.
For example, a New York resident with an annual income of $495,000— just below the AGI threshold—will stand to benefit most from the increased SALT deduction cap. If they get a raise and begin to earn $600,000, however, their deduction cap would phase down to the $10,000 floor.
For businesses, tax deductions aren't affected by the SALT cap increase. For example, pass-through entity tax workarounds are still viable for businesses like partnerships and S-corporations.
Impact of SALT cap increase
Married couple in a high-tax state earning under $500,000 jointly
Category |
Amount paid |
|
|---|---|---|
State income tax on earnings |
$22,000 |
|
Property tax for primary home |
$12,000 |
|
Property tax for vacation home |
$5,000 |
|
Personal property tax for vehicle |
$1,000 |
|
Total SALT payments |
$40,000 |
Deduction impact
Scenario |
Deduction allowed with SALT cap |
Extra deduction versus old cap |
|---|---|---|
Old cap (pre-2025) |
$10,000 |
NA |
New cap (2025 through 2029) |
$40,000 |
+$30,000 |
In the example above, the couple can deduct their full $40,000 in SALT payments instead of only $10,000—a $30,000 increase in deductions. This may translate to thousands in tax savings, depending on their tax bracket.
What action is required and when
With the OBBBA signed into law, you may now take advantage of the increased SALT deduction cap. To do so, you can implement strategies like employing multiple non-grantor trusts to potentially increase your SALT deduction limit significantly.
With non-grantor trusts, each trust is considered its own tax-paying entity with its own SALT deduction cap, instead of an individual taxpayer.
For example, if you created three non-grantor trusts and funded them with income-producing assets, each of your three trusts may be entitled to its own $40,000 SALT deduction compared to the single deduction you're entitled to as an individual taxpayer.
For people who can defer or accelerate their income, the increased SALT deduction cap offers another opportunity to reduce tax liability.
If your income is well below the $500,00 threshold, accelerating your income allows you to take full advantage of the increased deduction cap as you approach $500,000 AGI. If your income is close to the threshold, deferring some income can help you avoid being subject to the reduced deduction cap during the next 4 years.
If you're a business owner or an employee negotiating a salary, own stock options, or plan to convert a Roth IRA—and have the ability to defer or accelerate income—this income deferral or acceleration is worth considering.
Who should you talk to now
With the SALT deduction cap increases beginning the 2025 tax year, it's wise to speak to your tax and estate planning team now about new tax strategies.
For example, employing multiple non-grantor trusts will require guidance for properly managing trust income so it doesn't exceed the threshold, choosing an appropriate trust situs and ensuring you have a legitimate purpose for each trust. Discussing these options with seasoned professionals can help you take full advantage of this portion of the OBBBA.
To learn more about the OBBBA, the SALT deduction cap and how these changes may affect your personal and business tax obligations, visit the Tax Foundation or speak with your tax advisor.
Insights
A few insights for your financial plan
Tax planning: Maximizing your QSBS exemption
Ann Lucchesi
Senior Director
A historic repeal of state capital gains taxes is here
Potential effects of OBBBA on taxes and estate planning
Nerre Shuriah
JD, LLM, CM&AA, CBEC® | Senior Director of Wealth Planning and Knowledge
