Under the Trump administration’s tax reforms in the United States, the SALT (State and Local Tax) deduction limit has been increased to $40,000. This change is particularly beneficial for high-income taxpayers and families who pay a significant amount in state and local taxes.
The SALT deduction allows you to deduct your state and local taxes (such as property tax, state income tax, and sales tax) from your federal taxable income. This update highlights who can benefit most from this new tax benefit.
What is the SALT Deduction?
The SALT deduction means you can deduct state and local tax payments from your federal tax liability.
Example: If you paid $30,000 in state taxes and the federal tax rate is 35%, this deduction could save you approximately $10,500.
Under previous rules, the SALT deduction limit was $10,000. It has now been increased to $40,000, providing significant relief to high-income families and those who pay higher taxes.
Who is the biggest beneficiary of the SALT Deduction?
High-income families
- Those who pay more in their state and local taxes.
- They can now take advantage of the deduction up to $40,000.
Homeowners who pay higher property taxes
- People living in high-tax states like New York, California, and New Jersey.
- The $40,000 limit will reduce most property taxes.
People with state income taxes
People who pay higher state income taxes can directly reduce their federal taxes.
People affected by other tax deduction limits
People who spend more than the standard deduction and who use itemized deductions will benefit.
How does the new SALT Deduction work?
- Itemized Deductions Must File
- The SALT Deduction only applies to itemized deductions.
- If you take the standard deduction, you won’t receive the SALT Deduction.
- This limit applies to both single filers and married individuals filing jointly.
- No additional tax deductions are available after the $40,000 limit.
Family A paid $35,000 in taxes in New York in 2025.
Previously, due to the $10,000 limit, only $10,000 could be deducted from federal taxable income.
Now, with the $40,000 limit, the entire $35,000 tax can be deducted from federal taxable income.
Tax Savings:
- Assume a 35% Federal Tax Rate.
- Before: $10,000 × 35% = $3,500 savings.
- Now: $35,000 × 35% = $12,250 savings.
This means a family would receive an additional $8,750 benefit.
Impact of the Increased SALT Deduction
Relief in High-Tax States
Families in states like New York, California, and New Jersey, where state and property taxes are high, will receive relief.
Increased Taxpayer Savings
High-income families can now make significant savings due to the $40,000 limit.
The Importance of Itemized Deductions Increased
People can now choose itemized deductions instead of the standard deduction to cover more SALT and other expenses.
Impact on State and Local Financial Planning
Federal revenues may be impacted by increased tax deductions.
States may change their tax laws to fully benefit from the federal deduction.
Important Notes
- Only itemized filers can take advantage of this.
- Additional tax deductions are not available after the $40,000 threshold.
- The SALT Deduction benefit is limited to state-specific taxes.
- This deduction only affects filing federal tax returns, not local taxes.
Tips to Make the Most of the SALT Deduction
Choose Itemized Deductions: If your SALT and other deductible expenses are high, consider taking itemized deductions.
Keep all tax receipts and records: Keep records of property tax, state income tax, and sales tax.
Consult a Tax Professional: Those living in high-income or high-tax states should consult their tax professional to develop the right strategy.
Report correctly on Form 1040: It’s important to accurately report the SALT deduction using Schedule A.
Conclusion: Who will benefit most from the $40,000 SALT deduction?
High-income families who live in high-tax states, pay higher property and state taxes, and who use itemized deductions will find this change extremely beneficial. Trump’s tax reform has increased the SALT deduction fourfold compared to before, making it possible to save thousands of dollars in federal tax. Now is the perfect time to update your tax return and make the most of this $40,000 SALT deduction.
FAQs
Q1. Does the deduction impact state taxes?
A. No, the SALT Deduction only reduces federal taxable income. State tax liability remains unchanged.
Q2. Should high-income taxpayers consult a professional?
A. Yes, consulting a tax professional is recommended to maximize deductions and ensure compliance with all IRS rules.
Q3. How does the deduction affect federal taxes?
A. The deduction reduces your federal taxable income, which can lower your overall federal tax liability and potentially increase your tax refund.