The State and Local Tax (SALT) deduction has been a contentious topic in federal tax policy for years. Originally uncapped, the Tax Cuts and Jobs Act (TCJA) of 2017 imposed a $10,000 limit, a provision scheduled to sunset at the end of 2025. However, new legislation enacted in July 2025 significantly altered this timeline, creating a temporary period of expanded deduction followed by a planned reversion.
A Temporary Increase Followed by a Firm Deadline
The recently enacted "One Big Beautiful Bill Act" (OBBBA) in 2025 temporarily lifts the SALT cap for many taxpayers. Under the new law, the deduction limit rises from $10,000 to $40,000 for the tax years 2025 through 2029. During this five-year period, the $40,000 cap and the associated income thresholds will increase by 1% each year. Following the 2029 tax year, the cap will revert to its original $10,000 limit in 2030.
This change offers a short-term reprieve for many in high-tax states, though the benefit is not universally applied. A key element of the new law is an income-based phaseout that limits the deduction for the highest earners.
Understanding the Income-Based Phaseout
For taxpayers with a Modified Adjusted Gross Income (MAGI) over certain thresholds, the benefit of the higher SALT cap is gradually reduced. For joint filers, the full $40,000 deduction is available for those with a MAGI below $500,000 in 2025. Above this income level, the deduction is phased out by 30 cents for every dollar over the threshold. Once a household's MAGI reaches $600,000, the benefit is fully eliminated, and the cap reverts to the original $10,000. These income thresholds also increase by 1% annually through 2029.
How the SALT cap changes impact itemizing vs. standard deduction
The shifts in the SALT cap can influence whether taxpayers choose to itemize deductions. Under the original $10,000 cap, many found the standard deduction to be the more financially advantageous option, especially after the TCJA increased the standard deduction amounts. The temporary increase to $40,000, however, may make itemizing more appealing for eligible high-income earners in high-tax states who were previously constrained by the lower limit. This window of opportunity allows for more strategic tax planning to maximize savings before the reversion.
Comparison Table: TCJA vs. OBBBA SALT Cap
| Feature | TCJA (2018-2025) | OBBBA (2025-2029) | 2030 and Beyond |
|---|---|---|---|
| Cap Amount | $10,000 for most filers ($5,000 MFS) | Starts at $40,000 for most filers ($20,000 MFS) | Reverts to $10,000 for most filers |
| Expiration/Reversion | Originally sunset after 2025 | Reverts to old cap after 2029 | Cap is permanent at $10,000 (unless changed) |
| Inflation Adjustment | No | 1% annual increase for cap and phaseout thresholds | No |
| Income Phaseout | No | Yes, starts at $500,000 MAGI for joint filers | No |
| Primary Impact | Fewer taxpayers itemize | Targeted relief for high-income earners below thresholds | Resumption of previous tax planning strategies |
The Role of Pass-Through Entity Taxes (PTETs)
In response to the original $10,000 SALT cap, many states established Pass-Through Entity Taxes (PTETs) as a workaround. These workarounds allowed partners and shareholders in certain businesses to effectively bypass the cap. The recent federal tax changes, however, do not eliminate the state-level benefit of these PTETs. Taxpayers in states with PTETs should evaluate how the new federal cap interacts with their state's rules, as some PTET regimes may be scheduled to expire or are tied to the federal cap's existence.
Conclusion: Navigating the Temporary Tax Shift
The question of "will the salt cap expire?" has been answered with a temporary reprieve and a new, firm expiration date in 2030. The OBBBA's provision to increase the cap for a limited time offers a strategic window for eligible taxpayers to maximize their federal deductions. However, the temporary nature of this relief and its income-based phaseout underscore the importance of forward-looking tax planning. Taxpayers must now consider the effects of the impending 2030 reversion and adjust their long-term financial strategies accordingly.
For more in-depth information and analysis of tax legislation, consult resources from organizations such as the Committee for a Responsible Federal Budget (CRFB), which provides detailed fiscal projections related to tax policy (https://www.crfb.org). Taxpayers should also consult with a qualified tax professional to understand how these changes apply to their specific situation.
