If you’ve been frustrated by the $10,000 limit on state and local tax (SALT) deductions, there’s finally some good news. The One Big Beautiful Bill Act (OBBBA) gives that cap a much-needed lift—at least for a few years.
What’s Changing Starting in 2025, the amount you can deduct for state and local taxes jumps to:
• $40,000 if you’re married filing jointly, or • $20,000 if you’re married filing separately.
These limits will increase slightly each year for inflation from 2026 through 2029. Unless Congress steps in, the cap will drop back to $10,000 ($5,000 if married filing separately) in 2030.
So, while this boost isn’t permanent, it’s a welcome break for homeowners and business owners in higher-tax states.
The Catch: Income Phase-Outs There’s a phase-out rule for higher earners. If your modified adjusted gross income (MAGI) is above:
• $500,000 for joint filers, or • $250,000 for married filing separately,
your allowable SALT deduction is reduced by 30% of the income above that threshold. It won’t go below $10,000 (or $5,000 for separate filers), but that reduction can make a big difference.
Example: If your MAGI is $550,000, your deduction drops to $25,000 instead of the full $40,000.
Sales Tax vs. Income Tax Deduction As before, you can still choose to deduct state and local sales taxes instead of income taxes. That’s especially useful if your income tax bill is low, but you pay high property or sales taxes (for instance, when buying big-ticket items like vehicles or home improvements).
Pass-Through Entity (PTE) Workarounds Still Apply Many states now allow pass-through entities—like partnerships, S corporations, and LLCs—to pay SALT at the business level. This approach lets the business deduct those taxes as an expense before income passes through to owners, bypassing the federal SALT cap entirely.
The OBBBA doesn’t change that. If your state offers this election and your business hasn’t taken advantage yet, it’s worth revisiting with your CPA.
Smart Planning Moves To get the most out of the higher deduction, consider strategies that help you manage your income level. Here are a few ideas:
• Spread out capital gains instead of realizing them all in one year. • Stage your Roth IRA conversions over several years to stay below the income threshold. • Use your state’s PTE workaround if available.
A bit of income timing can go a long way toward maximizing your deductions.
Bottom Line The OBBBA gives taxpayers a few years of breathing room on the SALT deduction cap. For many families and business owners, that means more flexibility and potentially thousands in added deductions. But like many tax breaks, it pays to plan ahead.
If you’d like to review how the new rules could affect your 2025 tax strategy, reach out to McSwain Hiott CPAs. We can help you make the most of this temporary opportunity while it lasts.