SALT Cap Increase? What to Expect in 2025 Tax Reform

Discussions about the state and local tax deduction (SALT) continue.

One reason? Lawmakers are negotiating 2025 tax reform since Republicans control the White House and both chambers of Congress. And President Trump and several GOP lawmakers would like to see adjustments to the SALT cap.

• The SALT deduction allows taxpayers who itemize to deduct state and local taxes from their federal taxable income.
• The deduction was capped at $10,000 by the Tax Cuts and Jobs Act (TCJA), ushered in by Donald Trump in his first stint as president.
• Since then, the SALT cap has been a point of contention for many in high-tax states who argue the deduction limit disproportionately affects them.

But it’s important to note that the state and local tax deduction isn’t just an issue for people in so-called “blue states.”

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Several Republican lawmakers have said they wouldn't support 2025 tax reform that doesn’t significantly lift the cap, while the U.S. House of Representatives initially proposed a SALT write-off as high as $30,000.

But, just before passing their version of Trump's One Big Beautiful bill, House GOP on May 22, lawmakers reached a deal to increase the cap to $40,000 with an income limitation.

Meanwhile, Republican lawmakers in the U.S. Senate want to temporarily raise the deduction cap to $40,000, with a five-year sunset and an income phaseout at $500,000, but with certain loopholes remaining for business owners in states that permit them.

Here’s what all this could mean for you and your tax bill.

SALT deduction explained

The SALT cap was originally introduced to offset tax cuts in the TCJA, signed into law during Trump's first term in 2017. However, the $10,000 cap has faced criticism for placing an undue burden on residents of states with higher taxes, which tend to lean Democratic.

However, the dynamics surrounding the SALT deduction cap are complex, particularly when it comes to how some Republican lawmakers see its impacts.

• The SALT cap is often seen as penalizing residents in "blue states" with high state and local taxes. Data show California, Illinois, New Jersey, New York, and Pennsylvania account for most SALT deduction claims. (However, Texas, a "red state," is included in that data set.)
• For example, before the SALT cap, the average SALT deduction in Connecticut was around $20,900 according to the National Association of Realtors. Just after the $10,000 limit was enacted, the average SALT deduction in CT dropped to about $9,700. So, some Connecticut taxpayers saw a nearly 58% deduction decrease.
• However, some Republicans representing those states have become vocal about the need to raise or eliminate the cap. The urgency is heightened because the SALT deduction limit is set to expire at the end of 2025, if Congress doesn't act.

The cost of a SALT cap repeal (more on that below) and questions surrounding who benefits most (Tax Policy Center says high-income earners) are also key issues to be addressed in 2025.

GOP stance on SALT cap: "No SALT, No Deal"?

Rep. Mike Lawler (R-N.Y.) emerged as a key figure in this debate this legislative cycle.

He has emphasized that his backing and support from other representatives from New York, New Jersey, and California are essential for passing tax legislation. Lawler remarked, "I’ve been very clear. I will not endorse a tax proposal that does not remove the cap on SALT."

It’s also worth noting that Rep. Tom Suozzi (D-N.Y.), also known as "Mr. SALT," has been a prominent advocate for the restoration of the SALT Deduction for some time.

His mantra, "No SALT, no deal," became a rallying cry among some Democratic lawmakers from high-tax states.

SALT Cap income limit

Former President Donald Trump also weighed in. As Kiplinger reported, Trump called for lifting the SALT cap during his 2024 presidential campaign events, stating an intention to "get SALT back."

At the time, those comments brought mixed reactions. Some viewed it as a necessary pivot for constituents in high-tax states, while others criticized him for previously supporting the very legislation that imposed the cap.

Since then, lawmakers and Trump affirmed that some adjustment to the SALT cap is a priority in what he has dubbed the "one big beautiful bill" addressing taxes, border security, and more.

The House GOP’s version of the legislation, passed the House on May 22, would raise the SALT deduction cap to $40,000 per household earning up to $500,000.

• For incomes above that limit, the deduction cap would remain at $10,000.
• Both the $40,000 cap and the $500,000 income threshold will increase by 1% annually through 2033.
• Note: These details could change as the bill moves through the Senate. For example, as mentioned, the SALT proposal in the Senate bill would temporarily raise the deduction cap to $40,000, with a five-year sunset and an income phaseout at $500,000. However, certain loopholes would remain for business owners in states that permit them.

Cost of repealing or modifying the SALT cap

What about the cost? Eliminating the SALT cap could cost an estimated $1.2 trillion over ten years, according to the Committee for a Responsible Budget. That price tag raises concerns among some fiscal conservatives about federal revenue and deficit reduction.

Also, according to the Tax Policy Center, raising the SALT cap to $20,000 (or $40,000 for married filers) without an income cap could cost the federal government about $600 billion over ten years. While adding an income cap (e.g., $400,000 or $500,000) would reduce that cost, the exact reduction would depend on the final policy design.

So, that underscores another key issue in the onging tax reform debate: fiscal responsibility.

The Congressional Budget Office (CBO) has estimated that just making the TCJA permanent (a big item on Trump’s tax wish list) could cost more than $4 trillion over ten years.

Potential changes to the SALT deduction

As negotiations and positioning continue in Congress regarding potential new tax legislation, it remains to be seen which version of the SALT cap will be part of any final legislation.

The debate continues as the Senate works toward a vote on their version of the bill, which, if passed, would need to return for approval in the House before President Trump could sign.

Remember: Any changes to the SALT deduction could impact taxpayers nationwide, particularly those in states with higher tax burdens, so keep an eye on tax changes involving this and other key deductions.

This article has been updated to include activity in the U.S. Senate.

Related

• SALT Cap Could Hit Top 'Hidden Home Cost'
• What is the State and Local Tax (SALT) Deduction?
• Understanding the Tax Cuts and Jobs Act (TCJA)