OBBBA Notice #3 – The SALT Deduction
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By Ben Dolan, CFP®
One of the more contentious provisions of the 2017 Tax Cuts and Jobs Act (TCJA) was the cap on itemized deductions of state and local taxes, also known as SALT. In short, at the time, Republicans from high-tax states threatened a “NO” vote on the legislation if the SALT deduction was capped. Negotiations ensued, and a $10,000 cap on SALT was eventually included in the bill.
Fast forward to 2025 legislation via the OBBBA and the SALT deduction has been modified, at least for a bit. Starting in 2025, the SALT deduction limit has been increased to $40,000, and will increase 1% each year until 2030, when it will revert to $10,000. The new, higher limit will apply to all filing statuses, except for those that file married filing separately. They will only receive 50% of the higher limit.
Not everyone will enjoy the new, higher deduction amount. The deduction is subject to a phaseout based on modified adjusted gross income (MAGI). The phaseout begins at a MAGI of $500,000 and deduction is limited to $10,000 when the taxpayer’s MAGI hits $600,000 (like the deduction amount, the phaseout threshold will increase 1% per year through 2029).
Those falling within the phaseout should look for ways to reduce income, or above-the-line deductions that would reduce income, to keep from losing a portion of the deduction.
Following the capping of the SALT deduction in the TCJA, most US states scrambled to protect businesses owners by passing local laws allowing owners of passthrough entities (owners of a business whereby the profit they earn “passes-through” to their personal returns) to deduct state and local tax as a business expense. While many in Washington DC were hoping to do away with this provision in the OBBBA, especially by those in the house, the Senate version kept the pass-through provisions. For now, pass-through business owners still have this option.
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