Will the New SALT Cap Changes Save You Money?

Jasmine Trespecio
Jun 26
3 min read

As Congress debates a new federal tax bill, one key proposal could have major financial consequences for millions of Americans—especially homeowners and high earners in high-tax states. Lawmakers are considering raising the cap on the State and Local Tax (SALT) deduction from $10,000 to $40,000, and if passed, this could reshape how many Americans plan and file their taxes in 2025.

But what does this mean for you? Will your tax bill shrink—or stay the same?

Let’s break it down.

What Is the SALT Deduction?

The SALT deduction lets taxpayers deduct certain local taxes—such as property, income, and sales taxes—from their federal taxable income. This effectively lowers your federal tax bill.

Current cap: $10,000 (set by the 2017 Tax Cuts and Jobs Act)
Proposed cap: $40,000 (phased out at $500K income for individuals)

Under the current law, even if you pay $25,000 in property and state income taxes, you can only deduct $10,000 of it.

Who Benefits the Most?

This proposed change isn’t evenly beneficial for all taxpayers. Here’s who gains the most:

✅ High-income earners in high-tax states

If you live in California, New York, New Jersey, Illinois, or Maryland, chances are your combined property and state taxes exceed $10,000.
Raising the cap would let you deduct a much larger portion, cutting your federal tax liability.

✅ Homeowners with large mortgages

Mortgage interest and property taxes are both itemizable deductions. A higher SALT cap means more homeowners can again itemize instead of taking the standard deduction.

✅ Married couples in dual-income households

Married filers in high-tax zones often exceed the $10,000 cap easily. The $40,000 cap offers a meaningful reduction in taxable income.

Real-World Example

Case: Maria, Single Filer in New Jersey

Property Tax: $12,000
State Income Tax: $9,000
Total SALT Taxes: $21,000

Under current law:

Maria can only deduct $10,000 → she pays tax on $11,000 more of her income than she would under a full deduction.

Under proposed $40,000 cap:

Maria deducts the full $21,000
Savings: At a 24% federal marginal rate, she saves $2,640 in taxes.

What You Should Consider

1. Will You Benefit from Itemizing Again?

The standard deduction is high ($14,600 for single filers; $29,200 for married in 2025). If your itemized deductions (now possibly higher thanks to SALT) exceed that amount, it may be worth itemizing again.

2. Time Charitable Donations or Mortgage Interest

Taxpayers might bunch deductions into one year to benefit more—especially donations and mortgage prepayments—if itemizing becomes more common again.

3. Small Business Pass-Through Caution

If you own an LLC or S-Corp, new language in the bill could still restrict your state income tax deductions—so check with a tax advisor.

Financial Trade-Offs

Pros:

Potential tax savings of thousands per year for qualifying households
Encourages charitable giving and mortgage interest deductions
Relief for high-tax state residents who’ve seen increased federal liabilities since 2018

Cons:

Highly regressive: Top 20% of earners capture nearly all the benefits
Federal deficit concerns: Reducing revenue without offsets increases debt
Doesn’t help renters or those in low-tax states

Bottom Line: What Should You Do Now?

If you're a homeowner in a high-tax state—or a high earner anywhere—you may want to:

Start projecting your 2025 taxes now using both the current and proposed SALT caps
Talk to your accountant about whether to itemize, especially if you’re near the break-even point
Watch Congress—if the bill passes before the end of 2024, these changes could hit tax returns as early as next April

For the majority of middle-income Americans in low-tax states, the SALT cap increase might not change your tax bill—but if you’re in the upper brackets, it could be a five-figure difference.

Raising the SALT cap may sound like tax relief for the people—but in reality, it’s relief for a specific group of people. Whether it helps or hurts depends entirely on where you live, how much you earn, and how you spend.

Stay informed. Stay strategic. And don’t let tax law changes catch you off guard.