What the New SALT Deduction Cap Means for You
In July 2025, Congress passed the One Big Beautiful Bill Act (H.R. 1)—a sweeping tax reform package. Among the most talked-about changes: the SALT deduction cap was raised from $10,000 to $40,000, effective for tax years 2025 through 2029.
The cap will increase by 1% annually, peaking at around $41,600 in 2029. Starting in 2030, the cap reverts to the original $10,000 limit unless Congress acts again.
If you live in a high-tax state or city, such as New York, New Jersey, Connecticut, California, or Illinois, chances are your state and local tax bills exceed $10,000. Until now, you could only deduct up to that amount on your federal taxes. With the new $40,000 cap, you may now deduct much more, potentially reducing your taxable income and federal tax bill—especially if you itemize deductions.
Who benefits most? Homeowners with large property tax bills. Wage earners and retirees who pay high state income taxes. Families in high-cost urban and suburban areas. Married couples who previously felt limited by the single cap amount. This change is most beneficial for households with taxable income under $500,000, where the full deduction is allowed. Above that level, the benefit begins to phase out.
Many people switched to the standard deduction after the 2017 tax reforms. But this expanded SALT cap could make itemizing worthwhile again, especially when combined with mortgage interest, charitable contributions, and medical expenses. It’s a good idea to revisit your 2024 return and run the numbers for 2025. Let’s say your property tax and state income tax total $25,000. Under the old cap, you could deduct only $10,000. Under the new law, you may now deduct the full $25,000, potentially saving thousands on your federal return—if you itemize.
Some key details:
· The new cap starts at $40,000 and will increase slightly each year through 2029.
· The standard deduction is still available, so compare both options.
· The expanded SALT deduction begins phasing out at $500,000 in income for joint filers.
· The provision expires after 2029 unless extended by Congress.
· You may also consider timing your tax payments or charitable giving to maximize the benefit.
What should you do now?
· Review your 2024 tax return to see what you paid in state and local taxes.
· Talk to your tax advisor about whether you should itemize in 2025.
· Consider adjusting your withholding or estimated payments if your expected deductions will increase.
· And plan ahead—this expanded deduction is temporary, so make the most of it while it lasts.
The new SALT deduction cap—raised to $40,000 for the next five years—offers meaningful tax relief for many Americans. If you live in a high-tax area or have significant property and income taxes, this could be a great opportunity to lower your federal tax burden.
As always, tax planning works best when it's proactive. If you're not sure whether this change applies to you, now is the perfect time to reach out to a tax professional to evaluate your situation. At Compass Capital Management, we appreciate your trust in us to manage your investments and help achieve your financial goals. If you need a referral to a tax professional, please give us a call at the office anytime.
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