If you live in a state with high income or property taxes, filing your federal return has felt a bit like a punishment since 2018. The Tax Cuts and Jobs Act (TCJA) capped the State and Local Tax (SALT) deduction at $10,000, leaving many taxpayers with a hefty bill and no way to write it off. But thanks to the One Big Beautiful Bill Act (OBBBA), the tide is turning for the 2025 tax year.
The new legislation has temporarily quadrupled the SALT limit, meaning many taxpayers who have been taking the standard deduction for the last few years might finally save money by itemizing again. It’s a significant shift that could keep thousands of dollars in your pocket—if you know how to navigate the changes.
For the past several years, the tax filing decision has been relatively straightforward for most people. Because the TCJA nearly doubled the standard deduction and capped SALT write-offs, taking the standard deduction was almost always the better deal.
However, the math is changing for 2025. While the standard deduction is slightly increasing to adjust for inflation ($31,500 for married couples filing jointly and $15,750 for singles), the ability to deduct significantly more in state and local taxes might tip the scales back in favor of itemizing.
If your total itemized expenses—including mortgage interest, charitable donations, and now a much larger chunk of your state taxes—exceed the standard deduction, you should itemize. This is the year to run the numbers again, even if you’ve been on "autopilot" with the standard deduction recently.
Here is the headline number you need to know: For the 2025 tax year, the SALT deduction cap has risen from $10,000 to $40,000 for joint filers ($20,000 for married couples filing separately).
This is a game-changer for homeowners in high-tax states or anyone paying significant state income taxes. Previously, if you paid $35,000 in state and local taxes, you lost out on a $25,000 deduction. Under the new OBBBA rules, you can claim the full $35,000.
Let’s look at a quick example. Imagine a married couple in the 32% tax bracket who pays $40,000 in eligible SALT expenses.
While the cap increase is generous, it does come with some fine print for higher earners. The OBBBA introduces a "phase-out" based on your Modified Adjusted Gross Income (MAGI).
If your MAGI exceeds $500,000 (for joint filers), the allowable deduction drops by 30% of the amount over that threshold. Once your income hits $600,000, you are bumped back down to the old $10,000 cap.
However, even with the reduction, many high earners will still come out ahead compared to previous years. If your income is slightly over the threshold, you might not get the full $40,000 deduction, but you will likely still get more than the old $10,000 limit.
To make itemizing worth it, your total deductible expenses need to beat the standard deduction. With the SALT portion potentially contributing up to $40,000, it’s easier to cross that finish line. But don't forget to stack your other deductions on top:
Tax planning isn't about doing what you did last year; it's about reacting to the current rules to maximize your wealth. If you have high property taxes or state income taxes, the "standard" approach might no longer be the smart approach.
We can help you assess the impact of the new SALT limit and run the projections to see if itemizing is your ticket to a lower tax bill in 2025. Don't leave money on the table—contact us to set up an appointment and let’s get your strategy sorted.