The SALT deduction cap increased to $40,000 for 2025 — who benefits and how do I claim it?

The One, Big, Beautiful Bill Act (OBBBA) dramatically raised the State and Local Tax (SALT) deduction cap from $10,000 to $40,000 for the 2025 tax year ($20,000 for married filing separately). This change provides significant relief for taxpayers in high-tax states like California, New York, New Jersey, Illinois, and Connecticut.

### What Changed?

### Who Benefits Most?

The increased cap primarily helps taxpayers who:

• Itemize deductions on Schedule A (the SALT deduction is not available to those taking the standard deduction).
• Live in high-tax states with high property tax, state income tax, or both.
• Pay more than $10,000 in combined state income taxes and/or property taxes annually.

For example, a homeowner in New Jersey paying $18,000 in property taxes and $15,000 in state income taxes could now deduct the full $33,000 in 2025 — compared to only $10,000 before.

### Income Phase-Out

The increased $40,000 SALT cap is not available in full to very high earners:

• Phase-out begins: MAGI exceeds $500,000 (single) or $500,000 (MFJ; same threshold for joint filers per OBBBA).
• Phase-out rate: The SALT cap is reduced by 30% of every dollar of MAGI above $500,000, until it floors at the $10,000 minimum.
• Example: A single filer with MAGI of $510,000 has their cap reduced by $3,000 (30% × $10,000 excess), giving a $37,000 effective cap.

### How to Claim

SALT deductions are claimed on IRS Schedule A, Lines 5a–5e, as part of itemized deductions. You must itemize (not take the standard deduction) to benefit. Report:

• State and local income taxes (or sales taxes, if you elect that option) on Line 5a.
• Real estate taxes (property taxes) on Line 5b.
• Combined, the total is capped at $40,000 on Line 5e.

Key tips:

• You cannot deduct both state income taxes and state sales taxes — you must choose one or the other.
• Property taxes paid on a second home or rental property may be deductible separately (rental property taxes are deducted on Schedule E, not Schedule A, and are not subject to the SALT cap).
• If your total itemized deductions (SALT + mortgage interest + charitable contributions + other) exceed the 2025 standard deduction ($15,000 for single, $30,000 for MFJ), itemizing will reduce your tax more.