OBBBA Enhances Your SALT Deductions

OBBBA Enhances Your SALT Deductions

The One Big Beautiful Bill Act (OBBBA) makes many provisions from the 2017 Tax Cuts and Jobs Act (TCJA) permanent.

Thankfully, one of those provisions is not the state and local tax (SALT) deduction.

The TCJA limited itemized SALT deductions for 2018–2025 to $10,000, or $5,000 for married individuals filing separately. These skimpy limits caused much unhappiness for residents of high-tax states—and for some of their elected representatives.

For 2025–2029, the OBBBA increases the SALT deduction limit to $40,000, or $20,000 for married individuals filing separately—with 1 percent annual inflation adjustments starting in 2026. Beginning in 2030, however, the SALT deduction limit is scheduled to revert to $10,000/$5,000 unless Congress takes further action.

Phase-Out Rule

For 2025, the higher OBBBA SALT limit begins to phase out once your modified adjusted gross income (MAGI) exceeds $500,000, or $250,000 for married individuals filing separately. For 2026–2029, these thresholds will be adjusted for inflation. The phase-out reduces your otherwise allowable SALT deduction limit by 30 percent of the excess MAGI over the threshold, but not below $10,000/$5,000.

Example 1. You are a married joint filer in a high-tax state. For 2025, your SALT bill is $50,000, mainly due to high property taxes. Your MAGI is $300,000. Because your MAGI is below the phase-out threshold, you’re eligible for the maximum $40,000 SALT deduction, and you can deduct that amount. That’s a total win under OBBBA.

Example 2. You are a married joint filer in a high-tax state. For 2025, your SALT bill is $60,000, and your MAGI is $550,000. Under the phase-out rule, your SALT deduction limit is $25,000: $40,000 – $15,000 (30 percent of the $50,000 excess over the threshold) = $25,000. That’s much better than the old $10,000 cap—count it as a partial win.

Example 3. You are a married joint filer in a high-tax state. For 2025, your SALT bill is $70,000 and your MAGI is $700,000. Under the phase-out rule, your SALT deduction limit is $10,000, because $40,000 – $60,000 (30 percent of the $200,000 excess) is a negative number. You can deduct only the minimum $10,000. The OBBBA’s higher limit does you no good because your income is too high.

Key Point

As before the OBBBA, you can still choose to deduct general state and local sales taxes instead of state and local income taxes. This option can help itemizers who owe little or nothing for SALT. In that case, your deduction is based on general state and local sales taxes plus state and local property taxes, if applicable.

SALT Deduction Workarounds

The OBBBA raises the SALT deduction cap for 2025–2029, but it does not eliminate or limit the pass-through entity SALT deduction workarounds that many states have created.

Generally, these workarounds allow partnerships, LLCs taxed as partnerships, and S corporations to pay SALT bills on their business income and pass the deductions through to owners. This avoids the otherwise applicable SALT deduction limits.

Bottom line: State-law SALT deduction workarounds remain intact under the OBBBA.

How to Win

The planning trick under the new SALT rules is to micromanage your MAGI to maximize the higher deduction limit.

• Spread out net capital gains over several years by timing gains and losses to stay under or close to the threshold.

• Spread out taxable income from Roth conversions by doing them over multiple years.

• If your state offers a SALT workaround and you haven’t yet opted in—take advantage now.

• If you’re 65 or older, don’t forget about the new senior bonus deduction. Paired with the higher SALT limit, that’s a double win.

Takeaways

• The OBBBA temporarily boosts the SALT deduction cap to $40,000 for 2025–2029, with 1 percent annual inflation increases, up from the long-standing $10,000 limit—great news for taxpayers in high-tax states.

• The benefit phases out for high-income filers starting at $500,000 MAGI ($250,000 if married filing separately), with a guaranteed minimum $10,000 deduction.

• Smart tax planning—such as spreading out capital gains or Roth conversions—can help keep MAGI under the phase-out thresholds.

• State-level SALT workarounds for pass-through entities remain valid. Combined with other breaks like the new senior bonus deduction, strategic taxpayers can significantly cut taxable income.

This article was written by W. Murray Bradford, CPA, Publisher of the Tax Reduction Letter. For more resources, visit www.bradfordtaxinstitute.com.