A new agreement has been reached in Congress to raise the federal cap on state and local tax (SALT) deductions from $10,000 to $40,000, providing substantial relief for homeowners in high-tax states starting in 2025.
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SALT Cap Deal Reached
House and Senate lawmakers have successfully negotiated a deal to increase the SALT deduction cap, allowing homeowners in states like California, New Jersey, and New York to deduct up to $40,000 in state and local taxes from their federal tax returns. This deal marks a significant win for taxpayers in high-tax states, where rising property values and tax bills have made the $10,000 cap a major issue.
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Why SALT Cap Matters
The SALT cap, introduced in the 2017 Tax Cuts and Jobs Act, limits the amount homeowners can deduct from their federal taxes for state and local taxes, including property taxes. This cap, set at $10,000, has become a burden for residents in high-tax states, where property taxes alone often exceed this threshold, preventing full deductions.
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What’s Changing?
The new deal raises the SALT cap from $10,000 to $40,000 starting in 2025, which represents a significant increase. The cap will phase out for households earning $500,000 or more, and both the cap and income threshold will increase by 1% annually until 2029.
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Political Influence Behind the Deal
The SALT Caucus, comprising mostly blue-state Republicans, has been instrumental in pushing for this change, with some members proposing even higher caps. Rep. Nick LaLota (R-NY) suggested caps as high as $62,000 for single filers and $120,000 for joint filers. Advocacy from the National Association of Realtors® also helped bring the issue to the forefront of congressional discussions.
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How Will It Affect You?
Homeowners in high-tax states, particularly those with property taxes and state income taxes above $10,000, stand to benefit most from this change. The increase will primarily help those who itemize deductions rather than take the standard deduction.
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Looking Ahead
If the bill is signed into law, the new cap would take effect in 2025, with the cap reverting to $10,000 in 2030 unless further action is taken. The new tax relief is expected to offer significant savings for taxpayers in states with high property and income taxes.
