The One Big Beautiful Bill Act (OBBBA) was signed into law on July 4th, 2025. One key change included as part of the bill is a temporary increase to the cap on state and local taxes (SALT) that can be deducted on your federal tax return. This has been a hot-button issue for taxpayers in high-tax states. The provision increases the SALT deduction cap from $10,000 to $40,000 (subject to income limitations) for tax years 2025-2029, significantly increasing the deduction for taxpayers who itemize.
What is SALT?
- SALT stands for State and Local Taxes, which are currently limited to a $10,000 itemized deduction due to the Tax Cuts and Jobs Act of 2017.
What has changed?
- The One Big Beautiful Bill Act has now placed a five-year temporary raise to the SALT deduction for tax years 2025-2029. After which the deduction is set to revert back to the $10,000 limit.
- The new limit is $40,000 for everyone with a Modified Adjusted Gross Income (MAGI) of $500,000 or less.
- The deduction and income limits are set to increase 1% each year through this period.
What if my income is over $500,000?
- For higher income earners, the SALT deduction will phase out between $500,000 and $600,000. Those with a MAGI of $600,000 or more, will receive a $10,000 deduction allowance.
- The phase out calculation takes 30% of the income over $500,000 and subtracts that amount from the allowable SALT deduction of $40,000. If your MAGI is $560,000, you would have $60,000 over the limit. $60,000 x 30% = $18,000. Your allowable SALT deduction would now be $22,000, $40,000 - $18,000 = $22,000.
How does this affect Pass-Through Entity Tax (PTET) paid by S-Corporations and Partnerships?
- For business owners taking advantage of PTET, there is currently no change due to the SALT deduction increase. This allows those paying PTET to continue to deduct state tax payments on their business tax returns and also take advantage or the increased SALT deduction as an itemized deduction on their personal tax return.
- This will be on a state-by-state basis, as some states could potential phase out their PTET programs currently in place.
If you have any questions about the opportunities listed above, or if you would like to schedule an appointment to understand the impact to these changes on your situation, please do not hesitate to contact our team. Appointments can be schedule online by visiting our homepage at www.ongandcompany.com