Before 2018, taxpayers enjoyed an unlimited deduction for state and local taxes (SALT), encompassing both property taxes and either state and local income or sales taxes—not both. However, the legislation enacted during Trump’s presidency in 2017 imposed a cap of $10,000 on this deduction, set to last until 2025. The cap has become a significant point of contention for legislators from high-tax states such as New York, New Jersey, and California, where residents often face steep tax bills.
Compounding the issue, the 2017 tax reform also doubled the standard deduction. This change dramatically reduced the number of taxpayers who choose to itemize their deductions. According to IRS data for the tax year 2022, nearly 90% of tax returns utilized the standard deduction, while only about 15 million filers—less than 10%—claimed the SALT deduction.
Looking ahead, there are proposals to adjust the SALT deduction limit, which, according to a May analysis by the Tax Foundation, would primarily benefit higher earners. Under the proposed changes, the SALT deduction limit is expected to incrementally increase by 1% each year until 2029, after which it will revert to the $10,000 cap in 2030.
For the year 2025, the same legislation plans to raise the standard deduction to $15,750 for single filers and $31,500 for married couples filing jointly. This means that taxpayers will need their combined itemized deductions—including SALT, limited charitable contributions, medical expenses, and other tax breaks—to exceed these new thresholds to benefit from itemizing. The anticipated $40,000 SALT cap could enable more taxpayers to itemize their deductions in 2025, prompting tax advisors like Tommy Lucas from Moisand Fitzgerald Tamayo in Orlando, Florida, to highlight its significance, especially for clients in states with high income or property taxes.
Overall, if enacted, these changes could provide much-needed relief for those adversely affected by the SALT deduction cap and reshape tax strategies for many individuals in higher-tax states.