The state and local tax deduction (SALT) has been getting attention lately. That's partly because last year, President Trump floated the idea (supported by some Democrats) to "bring back SALT" (i.e., get rid of the $10,000 deduction cap).
The SALT deduction has been part of the U.S. tax code for over a century. The tax break allows eligible taxpayers to reduce their federal tax liability by deducting certain state and local taxes.
However, ongoing political debate over past legislative changes and newly enacted tax changes have spotlighted this deduction again.
From just $107.88 $24.99 for Kiplinger Personal Finance
Be a smarter, better informed investor.
Sign up for Kiplinger’s Free Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
So, what’s happening with the SALT deduction? Here are three things you need to know now.
1. What is the SALT deduction?
The SALT deduction allows taxpayers who itemize to subtract certain state and local taxes from their federal taxable income. These taxes include state property taxes, income taxes, and sales taxes.
Before 2018, there was no limit on the amount that could be deducted. However, the Tax Cuts and Jobs Act of 2017 (TCJA), also known as the "Trump tax cuts," imposed a cap of $10,000 on the SALT deduction ($5,000 for married individuals filing separately) from 2018 through 2025.
- Taxpayers had to itemize their deductions to be eligible for the SALT deduction rather than taking the standard deduction.
- So, the SALT deduction and other itemized deductions had to exceed the standard deduction to be beneficial.
Note: For 2025, the standard deduction has been increased due to inflation adjustment and the enactment of Trump's new tax bill. So, it's $15,750 for single filers and $31,500 for married couples filing jointly.
2. Why the SALT cap is in the news
Trump made headlines during last year's presidential campaign with a social media post calling for the reinstatement of the full SALT deduction.
"VOTE FOR TRUMP! I will turn it around, get SALT back, lower your Taxes, and so much more," the President posted on Truth Social.
The claim, seemingly designed at the time to appeal to voters in the Empire State, was among a string of tax proposals mentioned in Trump campaign events, from no tax on tips to ending taxes on Social Security and eliminating federal taxes on overtime pay.
The SALT cap has been particularly unpopular in high-tax states like New York, New Jersey, and California — so-called “blue states” that typically lean Democratic.
However, the "get SALT back" claim was ironic since the deduction was capped at $10,000 due to the TCJA. The TCJA was the signature tax overhaul of the first Trump Administration.
And adding to the chatter:
- With other key tax provisions, the SALT cap was set to expire at the end of this year (2025), if Congress hadn't taken action.
- Limiting the SALT deduction served as an offset for various 2017 TCJA tax cuts.
- Estimates from the Joint Committee on Taxation (JCT) had the cap increasing federal revenues by about $21 billion a year.)
Some opponents of increasing the SALT cap argue the limitation primarily impacts majority Democratic states with high local and state taxes, like New York, California, New Jersey, and Connecticut. However, so-called "red states" have been impacted as well.
Data show some of these states have seen reduced tax benefits for residents and various impacts on property values and local government budgets.
For more information, see Kiplinger's report 2025 SALT Cap Could Hurt Top 'Hidden Home Cost.'
3. What the new Trump tax bill means for the SALT deduction cap
As mentioned, the SALT deduction cap was set to expire at the end of this year, along with many other provisions of the TCJA. That set up a major post-election tax battle on Capitol Hill that has culminated in the enactment of the so-called "One Big Beautiful Bill" (OBBB).
Proponents of the now-increased SALT deduction often argue that the cap disproportionately affected residents of high-tax states, which tend to provide extensive public services. Other related arguments have been that:
- Reinstating the deduction prevents double taxation by allowing taxpayers to avoid paying federal taxes on income already paid to state and local governments.
- It could also support state and local government autonomy in setting tax rates.
Meanwhile, some opponents of the more robust SALT deduction contend that the tax break primarily benefits taxpayers with higher incomes.
According to the Tax Foundation, before the cap, 91% of the deduction's benefit went to those with incomes over $100,000.
So, the arguments for not increasing the deduction are primarily that:
- The SALT deduction incentivizes higher state and local taxes, potentially leading to less efficient government spending.
- Removing or increasing the cap would significantly reduce federal revenue.
The fiscal impact? The JCT estimated that the SALT deduction cap would increase federal revenue by about $77 billion in 2019 alone.
Conversely, removing the cap would result in a significant loss of federal revenue (a little over $1 trillion, according to Committee for Responsible Budget estimates).
On July 4, 2025, President Trump signed the OBBB into law. The new mega tax legislation makes the following changes:
- The SALT deduction cap will temporarily increase to $40,000 per household, but only for those with adjusted gross incomes (AGI) at or below $500,000.
- Those above that income limit would be subject to the $10,000 cap.
- Also, both the $40,000 and $500,00 limit would be subject to a 1% inflation adjustment.
The legislation implements a five-year sunset for the higher SALT cap amount and contains loopholes for some business owners in states that permit them.
Note: These changes take effect for the 2025 tax year (returns you'll typically file in early 2026). So, consult a tax professional if you have questions or concerns about how the new cap changes could impact your tax bill.
Related
- What's Happening With Taxes on Overtime Pay?
- 'No Tax on Tips' Approved: What to Know Now
- Trump's 'One Big, Beautiful Bill' With a Focus on Tax Cuts
- Five Ways Trump’s 2025 Tax Bill Could Boost Your Tax Refund (or Shrink It)
-
Ask the Editor, October 17: QCDs and Tax-PlanningAsk the Editor In this week's Ask the Editor Q&A, Joy Taylor answers more questions about the use of qualified charitable distributions (QCDs) in end-of-year tax planning.
-
You May Want To Think Twice Before Selling These Four Assets in RetirementSitting on little gold mines? It's natural to want to cash out when you retire. Here’s why you may not want to.
-
What’s the New 2026 Estate Tax Exemption Amount?Estate Tax The IRS just increased the exemption as we enter into a promising tax year for estates and inheritances.
-
IRS Updates 2026 Tax Deduction for People Age 65 and OlderTax Changes Adjustments to the extra standard deduction can impact the tax bills of millions of older adults. Here are some new amounts to know for 2026.
-
Child Tax Credit, EITC, & More: Three IRS Tax Breaks Getting Bigger SoonTax Credits Key family tax breaks are higher for 2026, including the Earned Income Tax Credit and the Adoption Credit. Here's what they're worth.
-
Standard Deduction 2026 Amounts Are HereTax Breaks What is the standard deduction for your filing status in 2026?
-
Claiming the Standard Deduction? Here Are Five Tax Breaks for Retirement in 2025Tax Tips If you’re retired and filing taxes, these five tax credits and deductions could provide thousands in relief (if you qualify).
-
Another IRS 1099-K Threshold Change to Know for Your 2025 TaxesTax Law After years of uncertainty and changing requirements, the 1099-K reporting rules for 2025 are now set, and the thresholds have changed since last year.
-
IRS 1099-K Threshold for 2025 Taxes Just Changed: What to Know Now
Tax Law After years of uncertainty and changing requirements, the 1099-K reporting rules for 2025 are now set, and the thresholds have changed since last year.
-
Ohio Property Tax Shock: Why Your New Assessment Is So High (And What Comes Next)State Taxes Higher home valuations in Ohio have led to homeowner property tax relief. But is it enough?
