NEWS
The SALT deduction 2025 brings a significant change to how taxpayers can deduct state and local taxes on their federal return. New limits, income thresholds, and filing rules will affect who qualifies and how much can be claimed when 2025 taxes are filed with the IRS in 2026. Understanding how the updated rules apply can help taxpayers avoid filing errors and missed deductions.
The state and local tax deduction lets taxpayers who itemize reduce their federal income tax by deducting certain state and local taxes paid during the year. These include state income taxes, sales taxes, and local property taxes. Taxpayers must choose between deducting income taxes or sales taxes, but they may not claim both.
The deduction is only available to taxpayers who itemize deductions. Anyone who takes the standard deduction cannot claim the SALT deduction, even if they paid significant state and local taxes during the year.
For the 2025 tax year, the SALT deduction cap increases to $40,000 for most taxpayers under the One Big Beautiful Bill Act. This higher deduction cap applies to joint filers, single filers, and heads of household. Taxpayers who file as separate filers are subject to a lower cap of $20,000.
This change marks a departure from the $10,000 SALT cap created by the Tax Cuts and Jobs Act, which limited deductions for state and local taxes beginning in 2018. Under current tax law, the higher cap is scheduled to rise modestly through 2029 before reverting to lower levels in 2030 unless Congress extends the provision.
Not all taxpayers will qualify for the full SALT deduction limit. The deduction begins to phase down for taxpayers with modified adjusted gross income above $500,000. For separate filers, the phase-out starts at $250,000.
Because the phase-out is based on modified adjusted gross income, taxpayers near these thresholds may see different results depending on whether they receive bonuses, investment income, or withdrawals from retirement plans. IRS data indicate that higher-income households are more likely to be affected by these limits.
Taxpayers claiming the SALT deduction must itemize deductions on Schedule A, which is filed with Form 1040. Schedule A is used to report state income taxes, sales taxes, local property taxes, and other itemized deductions, such as mortgage interest and charitable contributions.
Taxpayers should keep records of all state and local tax payments, including property tax bills and estimated tax payments. Self-employed taxpayers may need to distinguish between business-related state and local taxes reported on Schedule C and personal taxes claimed under the SALT deduction.
The deadline to file a 2025 federal tax return is April 15, 2026. Extensions are available until October 15, 2026, but any federal tax owed must still be paid by the April deadline to avoid penalties and interest.
The expanded SALT deduction is expected to benefit taxpayers in high-tax states, such as New York, particularly homeowners who face significant property taxes and state income taxes. Joint filers with large itemized deductions may see the most noticeable reduction in federal tax liability.
Taxpayers should compare itemized deductions with the standard deduction each year, since itemizing only provides a benefit when total deductions exceed the standard amount. Reviewing withholding and estimated payments can also help reduce unexpected balances due at filing time.
By William Mc Lee, Editor-in-Chief & Tax Expert—Get Tax Relief Now
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