One Big Beautiful Bill Raises SALT Limit

In 2017, Congress passed the Tax Cuts and Jobs Act, limiting an individual’s federal deduction for state and local taxes to $10,000, known as the SALT cap. Residents of states with higher income and property taxes were particularly impacted by this SALT cap.

In response, many states enacted pass-through entity tax (PTET) elections that allow pass-through entities to pay tax at the entity level, thus avoiding the individual limitation on the state and local tax deduction.

As of today, nearly all states with an income tax, plus New York City and Washington, D.C., have passed legislation allowing pass-through entity taxpayers to make a PTET election to take advantage of the federal deduction. These state PTET election regimes allow taxpayers to receive an above the line reduction to income, resulting in a benefit in proportion to the taxpayer’s effective federal income tax rate.

Taxpayers can benefit from a PTET entity-level deduction and a SALT deduction at the individual level.

Impact of New Tax Legislation on the SALT Cap

Since it was passed, the SALT cap has been the source of debate among legislators and taxpayers in states with higher tax rates. As predicted, the SALT cap was a central focus for legislators working on the One Big Beautiful Bill, some of whom wanted to see the cap increased, and some of whom wanted it to remain unchanged.

Ultimately, legislators settled on:

• A temporary cap increase to $40,000, indexed at a 1% increase per year through the end of 2029.
• There will be a phase down for taxpayers with income above $500,000, resulting in a marginal tax impact of up to $12,000 for higher income taxpayers.
• Taxpayers with income over $600,000 are limited to a $10,000 deduction.

In 2030, the SALT cap deduction will return to $10,000.

Work with a Trusted Partner

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