Increased State and Local Tax Deduction
Published August 1, 2025
For many years, state and local income and property taxes (SALT) have been deductible by taxpayers who itemize. However, the SALT deduction limit was set at $10,000 by the 2017 Tax Cuts and Jobs Act (TCJA). This limit was a concern for members of Congress from states with substantial income taxes. Taxpayers in those states who face high state or local income taxes and significant taxes on their homes were not able to deduct the full amount of those tax payments.
After a stirring debate in Congress, a compromise was reached, and the SALT limit increased to $40,000 in 2025 and $40,400 in 2026. It will be scaled up by an additional 1% each year until 2029. This higher limit will permit most taxpayers who itemize to deduct their full state and local income tax and the property tax on their home.
The new $40,000 SALT limit applies for 2025 through 2029. However, high income taxpayers will have a reduced deduction. If your 2025 income is over $500,000, your deduction is reduced by 30% of the excess amount. A couple with joint income of $550,000 would have a reduction of 30% of the $50,000 excess. Their SALT limit would be reduced by $15,000 and they could deduct $25,000.
The increased SALT deduction may benefit taxpayers in all 50 states, but the largest benefit will be states with higher taxes. Some top states are New York, California, Connecticut, New Jersey, Illinois and Minnesota.
Editor’s Note: The increased SALT deduction will cause more taxpayers to itemize. Some friends of nonprofits may discover that the SALT increase and charitable “bunching” could be helpful. The charitable “bunching” strategy is to give double the amounts to charity in one year and itemize deductions. The next year, the donor uses the standard deduction. This will be especially popular for those who benefit from the new $6,000 Senior Deduction (added to the standard deduction).
