The $10,000 cap on state and local tax (SALT) deductions made under 2017’s TCJA, has limited itemized deductions. Here is good news: the One Big Beautiful Bill Act (OBBBA) temporarily increases the cap starting in 2025. For many high-income earners, this deduction will require some tax planning prior to the end of 2025.

From 2025 through 2029, the SALT deduction limit increases to:

  • $40,000 if married filing jointly, or
  • $20,000 if married filing separately or single

The limits adjust 1% annually for inflation beginning in 2026. But unless extended by Congress, the cap returns to $10,000 (MFJ)/$5,000 (single) in 2030.

The increased deduction phases out if modified adjusted gross income (MAGI) exceeds

  • $500,000 (joint filers), or
  • $250,000 (married filing separately).

The phaseout reduces the SALT deduction by 30 percent of MAGI in excess of the threshold, with a floor of $10,000/$5,000. For example, if a MFJ MAGI is $550,000, only $25,000 of SALT can be deducted, not the full $40,000.

A taxpayer can still choose to deduct sales taxes instead of income taxes—useful if income taxes are low but sales or property taxes are high.

Importantly, state-level SALT deduction workarounds for pass-through entities (such as S corporations, partnerships, or LLCs) were not addressed, so they remain under OBBBA. These allow business entities to pay SALT at the entity level and pass through the deduction to owners—effectively bypassing the federal cap.

To maximize this deduction, consider managing MAGI by

  • spreading capital gains over multiple years;
  • staging Roth IRA conversions; or
  • leveraging the state’s SALT workaround, if available.

Killingsworth Spencer is here to help our clients fully understand their options to save taxes today and in the future. We have CPAs, Enrolled Agents, Bookkeepers, and payroll specialists on staff to help our clients with accounting and tax-related matters. For more information or to schedule an appointment, please call us at 770-552-8286. Visit us at www.killingsworthspencerllc.com

  • Disclaimer: This post is for general information only and should not be taken as legal or financial advice.