The One Big Beautiful Bill Act raised the state and local tax (SALT) deduction cap from $10,000 to what amount?

The state and local tax, or SALT, deduction allows taxpayers who itemize their deductions to subtract certain taxes paid to state and local governments from their federal taxable income. This includes property taxes, as well as either state and local income taxes or sales taxes. For decades, there was no limit on the amount taxpayers could deduct, but this changed with the 2017 Tax Cuts and Jobs Act (TCJA), which capped the SALT deduction at $10,000 for most filers. This cap proved highly contentious, particularly for residents in high-tax states, as it significantly limited a valuable tax break.

In response to ongoing debate and the impending expiration of the original cap, the One Big Beautiful Bill Act was signed into law in July 2025. This legislation temporarily raised the SALT deduction cap from the previous $10,000 to $40,000 for most single and joint filers, effective for tax years 2025 through 2029. For married individuals filing separately, the cap increased to $20,000. The new act also introduced a phase-out for higher earners, where the deduction is gradually reduced if their modified adjusted gross income (MAGI) exceeds certain thresholds, such as $500,000 for most filers in 2025.

The increase in the SALT deduction cap provides significant tax relief for many individuals, especially those in states with higher property and income taxes. This change aims to restore some of the tax benefits that were curtailed by the 2017 tax reforms, making itemizing deductions more attractive for a broader range of taxpayers. However, it's important to note that this enhanced cap is temporary, scheduled to revert to $10,000 in 2030 unless Congress takes further action. This ongoing discussion highlights the complex and often debated role of state and local tax deductions in the federal tax system.