State and Local Taxes - Updated Deduction amounts for 2025 Tax Bill
The State and Local Tax (SALT) deduction allows taxpayers who itemize to deduct certain state and local taxes—property taxes, plus either income or sales taxes—from their federal taxable income. The Tax Cuts and Jobs Act (TCJA) of 2017 capped this deduction at $10,000 ($5,000 for married filing separately) through 2025. However, the One Big Beautiful Bill Act (OBBBA), signed into law on July 4, 2025, temporarily increases the SALT deduction cap to $40,000 starting in 2025, with a 1% annual inflation adjustment through 2029, reverting to $10,000 in 2030.
*Note: State and Local Tax Deductions are only allowed if you choose to itemize on the individual level (1040 Tax Return).
Details for 2025:
Eligibility: The $40,000 cap applies to taxpayers with modified adjusted gross income (MAGI) of $500,000 or less ($250,000 for married filing separately). For MAGI above $500,000, the deduction phases out by 30% of the excess income, with a minimum deduction of $10,000. Those with MAGI of $600,000 or more are limited to the $10,000 cap.
Impact: This change benefits taxpayers in high-tax states (e.g., New York, New Jersey, California), particularly homeowners who itemize, as it allows larger deductions for state income and property taxes. However, it’s only beneficial if itemized deductions exceed the 2025 standard deduction ($15,750 for single filers, $31,500 for married filing jointly, $23,625 for heads of household).
Pass-Through Entities (PTEs): Many states have workarounds allowing PTEs to pay taxes at the entity level, bypassing the SALT cap for owners. The OBBBA retains these workarounds, benefiting PTE owners in states with such provisions
State and local taxes (SALT) eligible for the federal SALT deduction include:
Property Taxes: Taxes paid on real estate (e.g., homes, land) or personal property (e.g., vehicles), based on assessed value.
State and Local Income Taxes: Taxes paid to state or local governments on income earned, withheld from wages, or paid directly (e.g., estimated taxes).
General Sales Taxes: Taxes paid on purchases, deductible instead of income taxes if you choose this option (often calculated using IRS tables or actual receipts).
If you or anyone you know needs help determining your 2025 State and Local Taxes deductions, please do not hesitate to reach out.
Fred Passelli, CPA
561-386-3997
Fredpasselli.cpa@gmail.com
