Trump’s ‘Big Beautiful Bill’ Raises SALT Deduction Limit to $40,000: Who Stands to Benefit
On July 3, 2025, the U.S. House of Representatives, led by House Speaker Mike Johnson, approved President Donald Trump’s sweeping spending and tax legislation, informally dubbed the “big beautiful bill.” A key feature of this bill is the significant, though temporary, increase in the federal cap on the state and local tax (SALT) deduction.
What is the SALT Deduction?
The SALT deduction allows taxpayers to deduct state and local income taxes, as well as property taxes, from their federally taxable income. It is one of the itemized deductions taxpayers can claim to reduce their tax liability. Prior to 2018, the SALT deduction was unlimited — however, it was subject to limits imposed by the alternative minimum tax for higher-income households.
In 2017, under President Trump’s Tax Cuts and Jobs Act, a $10,000 limit on the SALT deduction was introduced and has been in place through 2025. This restriction has been a point of contention, particularly for residents of higher-tax states such as New York, California, and New Jersey.
Key Provisions of the New Bill
The newly passed legislation changes the SALT deduction as follows:
- Increased Cap: The SALT deduction limit will temporarily rise from $10,000 to $40,000 starting in 2025.
- Phase-Out Threshold: This enhanced deduction begins to phase out for taxpayers with incomes exceeding $500,000.
- Annual Increases: Both the $40,000 cap and the $500,000 income threshold will increase by 1% per year through 2029.
- Reversion in 2030: Unless extended or amended, the SALT deduction cap will return to $10,000 beginning in 2030. In addition, the bill adjusts the standard deduction for taxpayers, raising it modestly to $15,750 for single filers and $31,500 for married couples filing jointly in 2025. ### Impact on Taxpayers
Most taxpayers (approximately 90%, according to IRS data) claim the standard deduction and do not itemize deductions such as SALT. For those who do itemize, especially taxpayers in states with high local taxes, the increase from $10,000 to $40,000 can translate into significant federal tax savings.
According to analyses by the Bipartisan Policy Center, average SALT deductions in some states were already near the $10,000 cap, suggesting many affected taxpayers could see financial benefits from the higher cap.
However, the increased SALT limit primarily benefits higher-income taxpayers. A May 2025 Tax Foundation analysis noted that the expanded SALT deduction provides the largest gains to wealthier households, with the phase-out threshold targeting but not eliminating benefits for upper earners.
Criticism and Controversy
Experts and policy advocates have expressed criticism of the bill’s SALT provisions. Chye-Ching Huang, Executive Director of the Tax Law Center at NYU School of Law, voiced concerns on social media about the bill preserving loopholes that allow the wealthiest taxpayers to avoid the SALT cap entirely, while only modestly limiting benefits for upper-income groups.
The bill also maintains a SALT workaround for pass-through businesses—entities such as professional services firms—that allows owners to sidestep the $10,000 deduction limit. Earlier legislative proposals aimed to end this strategy for certain white-collar professionals but were modified in the current legislation.
Moreover, the legislation reduces itemized deductions for taxpayers within the top 37% income tax bracket, which may partially offset the benefit of the increased SALT cap for the highest earners.
Broader Context
The SALT deduction debate is part of a larger tax policy landscape shaped by the 2017 Tax Cuts and Jobs Act, which doubled the standard deduction but limited certain itemized deductions. Lawmakers from high-tax states have long lobbied for relief from the SALT deduction cap, citing its disproportionate impact on their constituents.
Trump’s revised legislation represents the most substantial SALT cap increase incorporated into a federal tax bill to date, nearly tripling the limit approved in previous House proposals. The bill’s passage marks a significant win for Republicans keen on tax relief for higher earners, especially in states hit hardest by the 2017 deduction limits.
What’s Next?
The new SALT provisions take effect in 2025 and are designed as a temporary measure through 2029, with the cap slated to revert in 2030 unless Congress acts to extend or revise the rules.
Taxpayers and tax professionals are closely monitoring the implementation of this bill. For those who itemize deductions and pay substantial state and local taxes, the increased SALT cap could mean meaningful tax savings in the coming years.
For more detailed analysis on how the new SALT deduction limits may affect your personal finances, stay tuned to Smart Money Mindset.