Big news for taxpayers who itemize their deductions! The State and Local Tax (SALT) deduction under IRC Section 164 just got a major upgrade thanks to recent tax legislation. If you're a homeowner or small business owner who's been feeling the pinch from the previous $10,000 cap, you're going to want to hear about these changes.

What's Changed with SALT Deductions?

The One Big Beautiful Bill Act (OBBBA) has dramatically increased the SALT deduction limits starting in 2025. The cap has jumped from a measly $10,000 to a much more generous $40,000 for married couples filing jointly ($20,000 for married filing separately). This is the first significant expansion since the Tax Cuts and Jobs Act put the brakes on SALT deductions back in 2018.

But here's where it gets interesting – these aren't permanent changes. The enhanced deduction limits will increase by 1% each year through 2029, then snap back to the $10,000 limit in 2030. Think of it as a temporary tax vacation that you'll want to make the most of.

Understanding the Phase-Out Rules

Not everyone gets the full $40,000 deduction. There's a phase-out mechanism for higher-income taxpayers that works like this:

• Full deduction available: Modified Adjusted Gross Income (MAGI) up to $500,000 (or $250,000 for married filing separately)
• Phase-out begins: Above $500,000 MAGI, the deduction reduces by 30% of the excess income
• Floor reached: At $600,000 MAGI or higher, you're back to the old $10,000 limit

Here's how the limits will progress over the next few years:

Tax Year	Maximum Deduction	Phase-Out Starts	Floor Reached
2025	$40,000	$500,000 MAGI	$600,000 MAGI
2026	$40,400	$505,000 MAGI	$606,333 MAGI
2027	$40,804	$510,050 MAGI	$612,730 MAGI
2028	$41,212	$515,151 MAGI	$619,191 MAGI
2029	$41,624	$520,302 MAGI	$625,715 MAGI

What This Means for Homeowners

If you own a home, especially in a high-tax state, this could mean significant savings on your federal tax bill. Property taxes are often one of the biggest annual expenses for homeowners, and now you can deduct much more of what you pay to state and local governments.

Let's look at a real-world example: Say you're a married couple with a combined income of $560,000, and you pay $27,720 in state income taxes plus $7,500 in property taxes. Under the new rules, your SALT deduction would be $22,000 (the $40,000 maximum minus 30% of your $60,000 excess over the $500,000 threshold). That means you can deduct $22,000 of your total $35,220 in state and local tax payments – a huge improvement over the old $10,000 limit.

Keep in mind that if you received state tax refunds in previous years, those might become taxable income if they reduced your taxable income when you claimed them. This is particularly important now that more taxpayers will benefit from the higher SALT deduction limits.

Small Business Owners: Double Benefits Available

Small business owners have even more opportunities to maximize their tax savings. The expanded SALT deduction applies to your personal tax return, but you might also benefit from Pass-Through Entity Tax (PTET) deductions at the business level.

Here's the beauty of it: PTET deductions don't count toward your personal SALT limitation. So you could potentially use entity-level deductions for business-related taxes AND take advantage of the expanded personal SALT deduction on Schedule A. It's like having your cake and eating it too.

This dual approach can be particularly valuable for:

• S-Corporation owners
• Partnership members
• LLC owners electing partnership taxation
• Sole proprietors with significant state tax obligations

Important Limitations to Keep in Mind

Before you get too excited, there are a few catches to be aware of:

High-Income Bracket Limitation: If you're in the 37% tax bracket, there's an additional limitation that effectively reduces the value of your SALT deductions from 37% to 32%. It's still valuable, just not quite as much as you might expect.

Alternative Minimum Tax (AMT): SALT deductions get added back when calculating your Alternative Minimum Taxable Income. With an accelerated claw-back provision starting in 2026, more taxpayers might find themselves subject to AMT.

Temporary Nature: Remember, these enhanced limits are temporary. In 2030, we're back to the $10,000 cap unless Congress acts again.

Strategic Planning Tips

Given the temporary nature of these changes, now's the time for strategic planning:

Timing Matters: Consider timing your SALT payments to maximize benefits during 2025-2029. You might want to prepay certain taxes or time when you make property tax payments.

Itemize vs. Standard Deduction: With higher SALT deduction limits, more taxpayers might find it beneficial to itemize rather than take the standard deduction. Run the numbers both ways.

State Planning: If you're considering a move, factor in how different states' tax structures might affect your federal deduction benefits.

Getting Professional Help

These changes are complex, and the interaction between different tax provisions can be tricky to navigate. The phase-out rules, AMT considerations, and strategic timing opportunities all require careful analysis of your specific situation.

At Brick Taxes LLC, we help clients understand how these changes affect their unique circumstances. Whether you're a homeowner trying to maximize your property tax deductions or a small business owner juggling entity-level and personal tax strategies, professional guidance can help you make the most of these temporary opportunities.

Looking Ahead

The expanded SALT deduction represents a significant but temporary opportunity for tax savings. Homeowners and small business owners in high-tax states stand to benefit the most, potentially saving thousands of dollars annually through 2029.

The key is to start planning now. Don't wait until tax season to think about how these changes might affect you. Review your current tax situation, consider your multi-year tax strategy, and make sure you're positioned to take full advantage of these enhanced deduction limits while they're available.

Ready to explore how the expanded SALT deduction might benefit you? Contact us at Brick Taxes LLC to discuss your specific situation and develop a tax strategy that maximizes these temporary opportunities. Our team stays current with all tax law changes to help ensure you're getting every deduction you're entitled to claim.