The State and Local Tax Deduction, known as the SALT deduction, provides a federal income tax deduction for state and local income taxes and property taxes as an itemized deduction reported on Schedule A of the tax return.
Prior to the 2017 tax act, the SALT Deduction was unlimited, allowing larger deductions for those who reside in states with higher property taxes and state income tax rates. While the Tax Cuts and Jobs Act of 2017 doubled the Standard Deduction, the SALT Deduction was capped at $10,000, therefore limiting the deduction for many and as a result significantly reducing the number of taxpayers who would benefit from Itemizing their Deductions.
The One Big Beautiful Bill (OBBB) recently signed into law increases the SALT deduction from $10,000 to $40,000, subject to income phaseouts, providing taxpayers with a much larger deduction which may exceed the Standard Deduction and therefore possibly lower their taxable income. For those who may be affected, proper tax planning, especially by year-end, is encouraged so that the necessary adjustments to with-holdings or estimated payments can be made to account for potentially larger deductions for 2025.