Starting in 2025, the federal limit on the state and local tax (SALT) deduction is temporarily increased.

From 2025 through 2029, eligible taxpayers may deduct up to:

• $40,000 if married filing jointly, or
• $20,000 if married filing separately

Beginning in 2026, these limits will be adjusted annually for inflation. Unless Congress extends the provision, the SALT cap is scheduled to revert back to $10,000 ($5,000 for married filing separately) in 2030.

Income phaseout applies

The higher SALT deduction begins to phase out once modified adjusted gross income (MAGI) exceeds:

• $500,000 for joint filers, or
• $250,000 for married filing separately

The phaseout reduces the allowable SALT deduction by 30% of MAGI above the threshold, but it will not fall below $10,000 ($5,000 for MFS).

Example:
If a married couple filing jointly has MAGI of $550,000, their allowable SALT deduction is limited to $25,000, not the full $40,000.

Sales tax option still available

Taxpayers may continue to deduct sales taxes instead of income taxes when income taxes are low but sales or property taxes are higher.

Business owners: important reminder

State-level SALT deduction workarounds for pass-through entities—such as S corporations, partnerships, and LLCs—remain available. These rules allow taxes to be paid at the entity level, with the deduction passed through to owners, effectively sidestepping the federal SALT cap.

Planning opportunities

To help preserve more of the deduction, consider strategies such as:

• Spreading capital gains across multiple tax years
• Breaking Roth IRA conversions into stages
• Using your state’s SALT workaround, when applicable

Proper planning is especially important for higher-income taxpayers impacted by the phaseout rules.