State and Local Tax (SALT) deduction definition
The SALT deduction lets taxpayers reduce federal taxable income by deducting certain state and local taxes.
The state and local tax (SALT) deduction is a federal itemized tax deduction that lets taxpayers subtract certain state and local income, property, or sales taxes from their federal taxable income. This helps reduce double taxation on the same income.
According to the Internal Revenue Service (IRS), the allowable deduction for SALT on Schedule A is currently capped at $10,000 per year ($5,000 if you’re married and file separately).
However, for tax year 2025, the SALT deduction changes as a result of the One Big Beautiful Bill Act.
What happens to the SALT deduction in 2025?
Beginning in tax year 2025, the cap on SALT deductions increases temporarily from $10,000 to $40,000 for joint filers (and to $20,000 for married filing separately). This limit applies to taxpayers with a modified adjusted gross income (MAGI) of $500,000 or less (or $250,000 for married filing separately). The cap will grow by 1% each year from 2026 through 2029, and will revert back to $10,000 in 2030 unless Congress acts again.
How the new SALT deduction works:
The increased cap for the SALT deduction is subject to phaseout rules based on Modified Adjusted Gross Income (MAGI).
- For filers with a MAGI of $500,000 or less: You can deduct up to the full $40,000 for the 2025 tax year.
- For filers with a MAGI over $500,000: The deduction is gradually phased out. For every dollar of MAGI over the $500,000 threshold, the cap is reduced by 30 cents.
- For filers with a MAGI of $600,000 or more: The maximum deduction reverts to the original $10,000 cap.
