SALT Deduction Expansion: Key Updates from Trump’s Tax Bill
By Lauren Young
May 22, 2025
In a significant legislative move, the Republican-led U.S. House of Representatives has passed a bill that could provide relief to affluent taxpayers residing in states with high property and income taxes. This proposal aims to expand the state and local tax (SALT) deduction limit from $30,000 to $40,000 on federal tax returns, a change which could have substantial financial implications for many high earners.
Background on SALT Deductions
The SALT deduction, which allows taxpayers to deduct state and local taxes paid from their federal taxable income, has been capped at $10,000 since the implementation of new tax laws in 2017. This cap has drawn criticism, particularly from taxpayers in high-tax states like New York, New Jersey, California, and others, where state taxes can significantly exceed this limit.
Recent Legislative Developments
On May 21, 2025, the House passed a bill aimed at raising the SALT deduction cap to $40,000. If approved by the Senate, this new cap would benefit a considerable number of taxpayers, particularly those earning between $200,000 and $500,000. Preliminary estimates by tax experts suggest this change could increase after-tax income by nearly 1% for these individuals, providing much-needed financial relief.
Ernie Tedeschi, director of economics at The Budget Lab at Yale, commented on the potential impact: "If you live in a state with high taxes and make between $200,000 to $500,000, we estimate that it will probably increase after-tax income by nearly 1%."
Lisa Lewis, a tax expert from TurboTax, emphasized the importance of this deduction for upper-income earners, stating that many have felt the absence of this valuable deduction since its cap was implemented.
Legislative Future and Potential Adjustments
While the House has moved to expand the SALT cap, the bill still needs to pass through the Senate, where it’s expected that certain elements of the SALT provisions may be revised. Mark Baran, a tax attorney and managing director at CBIZ, noted that as it currently stands, the SALT cap would increase annually by 1% through 2033. Many of those who stand to benefit the most from this deduction reside in states that have historically leaned Democratic.
The proposed changes could provide financial breathing room for residents of high-tax coastal states. However, Baran also cautioned that the broader distributional effects of the SALT adjustments remain unclear. Some, like Eric D. Brotman, CEO of BFG Financial Advisors, pointed out that while these changes may offer relief, they do not necessarily address the trend where high earners are relocating due to tax considerations.
Conclusion
As the bill moves through the legislative process, stakeholders, including taxpayers and tax professionals, are closely monitoring its potential modifications. Should the new SALT cap be enacted, millions of taxpayers in high-tax states could see increased deductions on their federal returns as early as the 2025 tax year.
For now, the debate over the SALT deduction highlights ongoing discussions about tax equity and the financial challenges faced by individuals in high-cost areas of the United States. As taxpayers await the outcome, their financial planning for the coming tax year may need to take these potential changes into account.
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