For the first time since 2018, taxpayers who itemize can write off far more of what they pay in state and local taxes. The new federal tax law lifted the cap on the state-and-local-tax deduction, long known as SALT, from $10,000 to $40,000. The change matters most to homeowners in high-tax states, where property taxes alone can swallow the old limit, but the larger deduction comes with a phasedown that quietly claws it back from the highest earners.
From a $10,000 ceiling to $40,000
The SALT deduction lets filers who itemize subtract certain state and local taxes, chiefly property taxes plus either state income or sales taxes, from their federal taxable income. A cap enacted in 2017 held that write-off to $10,000, a limit that hit hardest in states with steep property and income taxes. The One Big Beautiful Bill Act, the tax package enacted in 2025, raised the ceiling to $40,000 beginning with the 2025 tax year, the returns being prepared and filed in 2026. IRS guidance reflects the higher limit for eligible itemizers, a fourfold increase that can meaningfully lower a federal tax bill for households that had been bumping against the old cap.
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The phasedown that shrinks the break for high earners
The $40,000 figure is not available to everyone who itemizes. The higher cap begins to phase out once modified adjusted gross income passes $500,000. Above that line, the cap is reduced by 30 percent of the income over $500,000, and it keeps falling until it reaches a floor of $10,000 for filers with income of $600,000 or more. In other words, a household earning well into the six figures can still claim the full $40,000, while the very top earners are pushed back down toward the old $10,000 limit. As the nonpartisan Tax Foundation has detailed, that structure concentrates the benefit among upper-middle and moderately high earners rather than the wealthiest filers.
The mechanics reward careful planning near the income thresholds. A retiree who takes a large one-time distribution from a traditional retirement account, sells an appreciated asset, or converts funds to a Roth in a single year can push modified adjusted gross income past $500,000 and watch the SALT benefit erode. Spreading such income across tax years, where feasible, can preserve more of the deduction.
Why it is temporary, and what happens next
The expanded cap is written to fade rather than last. The $40,000 ceiling rises by 1 percent a year through 2029, a small inflation-style adjustment, and then reverts to $10,000 in 2030 unless Congress acts again. That built-in expiration turns the higher deduction into a window rather than a permanent feature of the code, and it gives itemizers in high-tax states a defined number of years to make the most of it. Anyone planning around the deduction should treat 2030 as the date the door closes under current law.
Who actually gains from the change
The larger cap only helps taxpayers who itemize, and the higher standard deduction means many households will still find the standard route simpler and larger. The filers most likely to benefit are homeowners in states such as New York, New Jersey, California, and Illinois, where combined property and income taxes routinely exceed $10,000 and often approach or surpass the new $40,000 line. For an older homeowner carrying a substantial property-tax bill in one of those states, the jump from a $10,000 cap to $40,000 can translate into a materially smaller federal tax bill for the years the higher limit is in place. IRS materials confirm the raised cap for tax year 2025, and for households near the phaseout thresholds the size of that benefit will turn on a single figure, modified adjusted gross income, worth watching before year-end.
This article was researched and drafted with the assistance of AI and reviewed by The Financial Wire editorial team.
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Warren Cohen is a finance writer based in Phoenix, Arizona, covering personal finance topics including credit, banking, and beginner investing. He earned his degree in business administration from Arizona State University and began his career working in consumer finance, where he gained direct experience with lending and credit systems. He now writes for personal finance websites and fintech platforms, focusing on clear, practical content that helps readers make informed financial decisions.
