If you're paying more than $10,000 in state and local taxes (SALT), the One Big Beautiful Bill Act (OBBBA) could put significant money back in your pocket this year. But there's a catch: income-based limits apply, and timing matters. Here's what you need to know to make the most of this opportunity.
The SALT Cap Just Got a Lot Higher
SALT expenses include property taxes on homes, vehicles, and boats, plus either income tax or sales tax (but not both). Before 2018, these expenses were fully deductible if you itemized. Then the Tax Cuts and Jobs Act (TCJA) capped the deduction at $10,000 ($5,000 for married couples filing separately).
That cap was set to expire after 2025. Instead, the OBBBA temporarily quadruples it. Starting in 2025, you can deduct up to $40,000 ($20,000 for separate filers), with 1% annual increases through 2029. In 2030, the $10,000 cap returns.
Here's what that means in real dollars: A single taxpayer in the 35% bracket with $40,000 in SALT expenses could save an extra $10,500 compared to the old $10,000 cap [35% × ($40,000 − $10,000)].
Watch Out for Income-Based Reductions
The higher limit comes with a twist. If your modified adjusted gross income (MAGI) exceeds certain thresholds, your deduction gets reduced by 30% of the excess. For 2025, that threshold is $500,000 ($250,000 for separate filers). Once your MAGI hits $600,000, you're back to the $10,000 cap.
Example: Let's say your MAGI is $550,000—that's $50,000 over the threshold. Your cap drops by $15,000 (30% × $50,000), leaving you with a $25,000 maximum SALT deduction instead of $40,000. Still, that's $15,000 more than the old cap, saving you $5,250 in taxes [35% × ($25,000 − $10,000)].
Should You Itemize or Take the Standard Deduction?
The SALT deduction only helps if you itemize. Thanks to the TCJA's nearly doubled standard deduction—and the OBBBA's further increase—many taxpayers found it no longer made sense to itemize. For 2025, the standard deduction is:
- $15,750 for single and separate filers
- $23,625 for head of household filers
- $31,500 for married couples filing jointly
But the higher SALT cap changes the math. If your SALT expenses plus other itemized deductions (like mortgage interest, charitable contributions, and certain medical expenses) exceed your standard deduction, itemizing could save you more.
Two Smart Year-End Strategies
Want to maximize your 2025 SALT deduction? Consider these moves:
1. Keep Your MAGI Below the Threshold
If you're approaching $500,000 in MAGI (or already over it), you can take steps to reduce it:
- Increase pretax contributions to retirement plans and Health Savings Accounts
- Avoid Roth IRA conversions
- Delay nonrequired traditional retirement plan distributions
- Hold off on asset sales that would trigger large capital gains
2. Prepay Property Taxes
If your 2025 SALT expenses are under $40,000 and your MAGI is below the threshold, consider prepaying your 2026 property tax bill before year-end. Just make sure the amount has been officially assessed—estimates don't count.
One Important Warning
SALT expenses aren't deductible for alternative minimum tax (AMT) purposes. A large SALT deduction could inadvertently trigger the AMT, especially after 2025 when the cap drops back to $10,000. This makes planning even more critical.
Let's Make Sure You're Getting Every Dollar You Deserve
The increased SALT deduction cap is a genuine opportunity to reduce your tax bill—potentially by thousands of dollars. But the income limits, itemization requirements, and AMT considerations mean there's no one-size-fits-all approach.
Ready to see how much you could save? The team at SD Mayer & Associates can analyze your specific situation, run the numbers, and develop a customized strategy to maximize your 2025 SALT deduction. We'll help you navigate the complexities and make smart decisions that keep more money in your pocket.
Contact us today for a consultation. Let's get started on reducing your tax bill and building your path to financial freedom.
SECURITIES AND ADVISORY DISCLOSURE:
Securities offered through Valmark Securities, Inc. Member FINRA, SIPC. Fee based planning offered through SDM Advisors, LLC. Third party money management offered through Valmark Advisers, Inc a SEC registered investment advisor. 130 Springside Drive, Suite 300, Akron, Ohio 44333-2431. 1-800-765-5201. SDM Advisors, LLC is a separate entity from Valmark Securities Inc. and Valmark Advisers, Inc. Form CRS Link
DISCLAIMER:
This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, accounting, legal or tax advice. The services of an appropriate professional should be sought regarding your individual situation.
HYPOTHETICAL DISCLOSURE:
The examples given are hypothetical and for illustrative purposes only.
