The House and Senate have agreed to raise the federal limit on state and local tax (SALT) deductions from $10,000 to $40,000 starting this year. High-tax states such as California, New Jersey, and New York will likely benefit from this the most.
Why Does It Matter?
Lawmakers in high-tax states have long complained about the previous cap, as property appreciation has increased tax bills well above $10,000. This new development comes as a result as the government officially implementing the One Big Beautiful Bill Act (OBBBA). Though parts of the extensive bill do not benefit all citizens, this aspect can be beneficial for homeowners.
The Previous SALT Cap
The SALT cap is the federal limit on state and local tax deductions. President Trump introduced it as part of his 2017 Tax Cuts and Jobs Act in an attempt to offset the cost of broader tax cuts. As home values have skyrocketed, so have property tax costs.
The previous cap was limiting for homeowners, especially ones in high-tax states. High effective property tax rates often push even middle-class families beyond $10,000, and they can’t claim the rest of what they pay in local taxes.
The Future
Industry groups like The National Association of Realtors (NAR) actually advocated for homeowners and helped push this bill forward. Here is how the future looks:
- The new $40,000 SALT cap has taken effect starting this year
- The benefit would slowly phase out of households earning $500,000 or more
- Both the cap and income threshold would increase by 1% every year until 2029
- In 2030, the cap will return to $10,000 unless lawmakers say otherwise
The new cap is expected to offer significant tax relief to homeowners, especially those in high-tax states who itemize deductions and pay above $10,000 in property and income taxes yearly. Additionally, the standard deduction for joint filers is set to increase to $32,000 from $29,000, for those who do not itemize their deductions.
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