The $10,000 SALT limit was felt acutely by higher-income earners in higher tax states or (in the case of Texas) states with high property taxes. According to the Tax Foundation, “before the TCJA, 91 percent of the benefit of the SALT deduction was claimed by those with income above $100,000 and concentrated in six states: California, New York, New Jersey, Illinois, Texas, and Pennsylvania.” The targeted nature of the $10,000 cap made this a hotly debated topic in Congress and a top priority for members of Congress from these states as the One Big Beautiful Bill Act (OBBBA) was being crafted this year.

 Under OBBBA, the SALT deduction limit will be $40,000 starting in 2025. This limit increases 1% each year from 2026 – 2029 and it will then revert to $10,000 in 2030. Similar to the TCJA limit, the $40,000 cap is the same for all filing statuses except Married Filing Separately, which has a $20,000 cap.

 OBBBA introduced a phasedown on SALT deductions based on income. Deductions are phased down by 30% of the amount by which modified adjusted gross income (MAGI) exceeds $500,000 to a minimum deduction of $10,000 or $5000 for MFS. The chart below helps make sense of this phasedown by showing the maximum SALT deduction based on MAGI and filing status.

Source: Michael Kitces at Nerd's Eye View https://tinyurl.com/yc7fner2 

There are quite a few implications for these new SALT deduction rules.

• Taxpayers with $500,000 - $600,000 in MAGI (or more) who itemize can face marginal tax rates of 45.5% in the phasedown range. This is 8.5 percentage points higher than the top bracket!

  
  

• It may be worth it for certain taxpayers to bunch their deductions together to take advantage of the higher SALT deduction limit in certain years and itemize, while taking the standard deduction in the other years.

  
  

• For taxpayers who may have their SALT deduction phased down, additional “above the line” deductions could become very valuable by keeping their MAGI below the phasedown level.

  
  

• As you may have noticed, there is a potential significant marriage penalty when both spouses are high earners and live in high SALT states. As you can see in the chart, the maximum SALT deduction and MAGI levels are the same for both the single and MFJ filing statuses. Remaining single could allow for up to $80,000 in combined deductions and up to $1 million in combined MAGI before any deduction phasedowns!

• The $40,000 SALT deduction limit is scheduled to expire in 2030 and revert to the current $10,000 limit. Congress could extend the OBBBA limit prior to this, but it would require additional action.

One area of tax law that is related to SALT but wasn’t touched by OBBBA, was state-level Pass-Through Entity Tax (PTET). PTET was created as a workaround to the $10,000 SALT limit in the 2017 Tax Cuts and Jobs act. PTET allows owners of pass-through businesses (such as partnerships and S-Corps) to classify their state tax payments as business expenses therefore bypassing the SALT cap (which only applies to personal expenses). There was discussion earlier in the legislative process for OBBBA of eliminating the benefits of PTET, but the final bill did not include any restrictions. This gives owners of pass-throughs more options going forward for deducting these taxes.

 OBBBA dramatically altered the rules for SALT deductions. As usual, there are several pros and cons depending on your perspective. The deduction limits are now much higher, but they are accompanied by a steep phasedown. The higher limits end in 2030, as currently legislated. The legality of pass-through entity tax was not changed. For some, this will create additional tax planning opportunities. Others will see very little change. If you live in a high SALT area and you think you may have some planning opportunities, don’t hesitate to reach out to us!