State and Local Tax Deduction: The New SALT Deduction Rules and What You Need to Know

By Patrick Diamond, CFP®

Over the past several years, the federal limit on the state and local tax deduction—known as the “SALT” deduction—has been a major issue for taxpayers in certain states like New York, New Jersey, Connecticut, Massachusetts — all states with higher income taxes or property taxes. Under the 2017 tax law, this deduction was capped at $10,000, which significantly reduced tax benefits for many households.

A new law now updates that limit starting in 2025, with additional adjustments through 2029. Below is a summary to what’s changing, how the “phasedown” works, and which households may see the biggest impact.

TL;DNR Summary:
Key Numbers for 2025

• New SALT Deduction Limit: $40,000

• Phasedown Starts: MAGI > $500,000

• Reduction Rate: 30% of income above the threshold

• Minimum Deduction After Phasedown: $10,000

• Deduction Reduced to Minimum at: MAGI of $600,000

• Annual 1% Increases: 2026–2029

• Cap Returns to $10,000: Beginning in 2030

1. The SALT Deduction Cap Increases to $40,000 in 2025

Beginning in 2025, the SALT deduction limit jumps from $10,000 to $40,000.
This means taxpayers who itemize will be able to deduct up to $40,000 of:

• State income taxes

• Local income taxes

• Property taxes

This increase will be especially meaningful for residents of high-tax states such as New York, New Jersey, Connecticut, Massachusetts, California, and others.

2. Annual 1% Growth from 2026 through 2029

After 2025, the SALT deduction cap will grow by 1% per year:

Tax Year SALT Deduction Limit :

2025 $40,000

2026 $40,400

2027 $40,804

2028 $41,212

2029 $41,624

This growth is modest, but it helps the deduction keep pace with rising taxes and inflation.

3. Cap Reverts Back to $10,000 in 2030

Unless Congress changes the law again, the SALT deduction will drop back to the old $10,000 limit in 2030.

4. A New “Phasedown” for High-Income Taxpayers

The new law includes a phaseout (called a “phasedown”) that reduces the SALT deduction for higher-income households.

Here’s how it works:

• The phasedown starts when your Modified Adjusted Gross Income (MAGI) exceeds $500,000 in 2025.

This threshold will increase by 1% per year, just like the deduction limit.

• The deduction is reduced by 30% of the income above the threshold.

Simple example:
If a taxpayer in 2025 has MAGI of $550,000:

• They are $50,000 over the threshold

• Their SALT deduction is reduced by 30% of $50,000 = $15,000

• Their maximum deduction would be:
  $40,000 – $15,000 = $25,000

• The deduction cannot be reduced below $10,000.

Even higher-income filers will still receive at least a $10,000 SALT deduction.

5. The Deduction Bottoms Out at $10,000 Once MAGI Hits $600,000 (in 2025)

The phasedown continues until MAGI reaches $600,000 in 2025, at which point the SALT deduction is reduced to its minimum value of $10,000.

The upper limit of the phasedown (the $600,000 figure) will also grow by 1% per year from 2026–2029.

*Disclaimer: This blog post and all blog posts are for educational and informational purposes only and are not meant to serve as tax or legal advice.