A major change to the State and Local Tax (SALT) deduction is here, thanks to the “One Big Beautiful Bill Act” that just passed the House of Representatives on July 3, 2025.
Since 2018, the SALT deduction, a part of the Tax Cuts and Jobs Act (TCJA), has been capped at $10,000. The new bill proposes to raise this limit to a much higher $40,000.
This isn’t a permanent fix, though.
The plan is for a slight 1% increase each year until 2029, and then it drops right back to the $10,000 cap in 2030. It also includes a catch for high earners, with the benefit phasing out for those with an adjusted gross income (AGI) over $500,000.
Why This “Benefit” Isn’t For Everyone
On the surface, a bigger SALT deduction cap seems like a win for taxpayers.
But is this new change really going to bring widespread relief, or is it just another tax maneuver that favors the wealthy?
While raising the State and Local Tax (SALT) deduction from $10,000 to $40,000 looks like a huge tax cut, it’s a move that will likely miss the mark for the average American.
This change, a key feature of the new “Big Beautiful Bill,” is tailored for a specific group, leaving many taxpayers out of the picture.
Breaking Down the New SALT Cap
Here are eight reasons why the expanded SALT deduction is not a broad benefit for most Americans:
1. It Primarily Benefits High-Income Earners:
The biggest impact of the increased SALT deduction will be felt by households with higher incomes, particularly those earning over $200,000.
These are the taxpayers who typically have state and local tax liabilities exceeding the previous $10,000 cap.
For instance, nearly 60% of filers with an adjusted gross income over $500,000 itemized their deductions in 2022.
2. Limited to High-Tax States:
The relief is concentrated in states with high property and income taxes, such as New York, California, New Jersey, and Connecticut.
Residents in states with lower tax burdens will see little to no change, as their state and local tax payments often don’t reach even the original $10,000 cap.
3. Most Americans Don’t Itemize:
A large majority of American taxpayers, approximately 90% in 2022, claim the standard deduction rather than itemizing.
The increased standard deduction introduced by the 2017 TCJA made itemizing less advantageous for many.
Unless their total itemized deductions (including SALT) exceed the standard deduction, the new cap offers no benefit.
4. Temporary Nature of the Increase:
The $40,000 cap is not permanent. It will increase by 1% annually until 2029, after which it is slated to revert to the original $10,000 limit starting in 2030.
This temporary nature makes long-term financial planning based on this higher deduction uncertain for taxpayers.
5. Phase-Out for Higher Earners:
While benefiting those with high incomes, the deduction begins to phase out for taxpayers with modified adjusted gross incomes exceeding $500,000.
This means the very top earners won’t receive the full benefit, and those just above the threshold will see their deduction significantly reduced.
6. Doesn’t Address Middle-Class Tax Burdens Broadly:
For many middle-income households, their combined state and local taxes, even in higher-tax states, may not reach $40,000.
Thus, the benefit for them might be minimal, or non-existent if they still choose the standard deduction.
As the Bipartisan Policy Center noted, “Low-income and middle-income households would likely not benefit from the SALT cap increase, given that most don’t have $40,000 (or $30,000 or $20,000) in SALT liability.”
7. Increased Federal Deficit Concerns:
Critics argue that this expansion of the SALT deduction will disproportionately benefit the wealthy and significantly add to the federal deficit.
The Tax Foundation estimates that raising the cap to $40,000 would cost an additional $320 billion compared to maintaining the $10,000 limit.
As Garrett Watson, director of policy analysis at the Tax Foundation, stated, “The bill is already suffering from a math problem, as the tax cuts add up to over $4 trillion, and spending cuts have been pared back.”
8. Potential for Tax Code Complexity:
A higher State and Local Tax (SALT) cap could inadvertently increase the complexity of the tax code. It might encourage more taxpayers to itemize, which is a more time-consuming process for both households and the IRS compared to taking the standard deduction.
Conclusion
In the end, while raising the SALT deduction cap is a significant tax policy shift, its benefits aren’t as widespread as they seem. It’s a targeted change that primarily advantages a select group of people in specific parts of the country, continuing a trend where tax adjustments often favor the highest income brackets.
