The 2025 SALT deduction cap, quadrupled by law with a phase-out for high earners
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For seven years the deduction for state and local taxes was capped at a flat $10,000 no matter how much a filer paid. A law signed July 4, 2025 quadrupled that cap for 2025 through 2029 — but only for filers under a specific income threshold, and only temporarily.
For 2025, the deduction for state and local taxes (SALT) is capped at $40,000 for most filers, up from the $10,000 cap that applied every year from 2018 through 2024. The increase comes from the One Big Beautiful Bill Act, signed into law July 4, 2025, and it is not unconditional: the higher cap shrinks for anyone with modified adjusted gross income above $500,000, disappears entirely above $600,000, and is scheduled to revert to $10,000 again in 2030 regardless of income.
The cap itself: $40,000, not unlimited
SALT covers state and local income tax (or sales tax, if a filer elects that instead), plus property tax, claimed as an itemized deduction. From 2018 through 2024, the 2017 Tax Cuts and Jobs Act capped that deduction at a flat $10,000 ($5,000 for a married person filing separately), regardless of how much was actually paid. For 2025, that cap rises to $40,000 ($20,000 filing separately) — confirmed directly by the IRS's 2025 instructions for Schedule A, the form used to itemize deductions. This only matters to filers who itemize; anyone taking the standard deduction does not claim a SALT deduction at all, regardless of the cap.
Who this actually helps
The increase mainly helps itemizers in states with meaningful income or property tax who were paying well above $10,000 in SALT and had the excess disallowed under the old cap:
| SALT actually paid | Deductible under 2024 cap | Deductible under 2025 cap |
|---|---|---|
| $8,000 | $8,000 | $8,000 |
| $18,000 | $10,000 | $18,000 |
| $37,000 | $10,000 | $37,000 |
| $55,000 | $10,000 | $40,000 |
A filer already paying under $10,000 in SALT sees no change at all — the cap was never binding on them. Someone paying $37,000, common in a high-property-tax area with meaningful state income tax, goes from a $10,000 deduction to the full $37,000, an extra $27,000 of itemized deductions — but only if their income is under the phase-out threshold below.
Raising the cap does not lower the bar to itemize
A bigger SALT deduction only shows up on a return if total itemized deductions — SALT plus mortgage interest, charitable gifts and the rest — exceed the standard deduction for that filing status. The 2025 standard deduction is $15,750 for a single filer and $31,500 for a married couple filing jointly, itself raised by the same July 2025 law. A single filer with $18,000 in SALT and no other itemizable expenses is now over the standard deduction and should itemize; the same filer under the old $10,000 SALT cap would have been capped well below the standard deduction and had no reason to itemize at all. Raising the SALT cap effectively lowers the SALT-driven threshold at which itemizing starts to pay off, which is part of why the change matters most in states with both meaningful property tax and state income tax, rather than states with low or no income tax.
The phase-out above $500,000
The higher cap is reduced by 30% of modified adjusted gross income above $500,000 ($250,000 filing separately), and the IRS confirms it cannot be reduced below $10,000 ($5,000 filing separately) no matter how high income goes:
| MAGI | Excess over $500,000 | Reduction (30% of excess) | SALT cap that applies |
|---|---|---|---|
| $500,000 or below | $0 | $0 | $40,000 |
| $550,000 | $50,000 | $15,000 | $25,000 |
| $600,000 | $100,000 | $30,000 | $10,000 |
| above $600,000 | — | capped at $30,000 | $10,000 (floor) |
The arithmetic works out so that the higher cap is fully phased out exactly at $600,000 of MAGI: $40,000 minus 30% of the $100,000 excess over $500,000 equals precisely $10,000, the floor. Anyone above $600,000 in MAGI is simply back to the old $10,000 cap, as if the 2025 law had not changed anything for them.
The stretch between $500,000 and $600,000
Inside that $100,000 band, every extra dollar of MAGI reduces the SALT cap by 30 cents — on top of whatever ordinary income tax applies to that dollar. For a filer who was actually using the full $40,000 deduction, that 30-cent reduction in deductible SALT is itself taxed at their marginal rate, on top of the tax on the extra dollar of income itself. Some tax practitioners have taken to calling this stretch a "SALT torpedo" because the effective marginal rate briefly spikes well above the filer's stated bracket rate before flattening out again past $600,000. It is not a separate penalty or surtax — it is simply the mechanical effect of a deduction shrinking as income rises.
What it comes to in dollars
Take a married couple filing jointly with $37,000 in actual state income and property tax, comparing two incomes at a 32% federal marginal rate:
| MAGI | SALT cap that applies | SALT actually deducted | Extra deduction vs. old $10,000 cap | Tax saved at 32% |
|---|---|---|---|---|
| $350,000 | $40,000 | $37,000 | $27,000 | $8,640 |
| $700,000 | $10,000 | $10,000 | $0 | $0 |
Identical $37,000 tax bill, identical filing status — the only difference is income, and it is worth $8,640 in this example. The income tax calculator covers the bracket math itself, though it does not model itemized deductions like SALT directly.
A temporary increase, not a permanent one
Both the $40,000 cap and the $500,000 phase-out threshold rise 1% each year from 2026 through 2029. After that, the entire higher-cap structure is scheduled to expire: the SALT deduction reverts to a flat $10,000 cap ($5,000 filing separately) for every filer starting in 2030, with no phase-out and no income test, unless Congress passes another law before then extending or changing it. The full text of the law is published as Public Law 119-21 on the federal government's official publication site.
What to check before assuming the higher cap applies to you
- Confirm you itemize rather than take the standard deduction — SALT only matters if your total itemized deductions exceed the standard deduction for your filing status.
- Estimate your modified adjusted gross income, not just gross salary, before assuming the full $40,000 cap applies — several other add-backs can affect MAGI beyond wages.
- Add up state income tax (or sales tax) and property tax together; the cap applies to the combined total, not to each separately.
- Do not assume the $40,000 figure carries forward past 2029 when planning multi-year decisions — the law as written reverts to $10,000 in 2030.
Sources
- IRS: 2025 Instructions for Schedule A (Form 1040), Itemized Deductions
- GovInfo: Public Law 119-21 (One Big Beautiful Bill Act), full text
This is general information, not tax advice. The phase-out depends on modified adjusted gross income, which is not the same figure as gross salary or taxable income; for a specific return, confirm the calculation with a tax professional or the IRS instructions for Schedule A.