The SALT Deduction and the “One Big Beautiful Act”: What It Means for You

By Tax&Facts | Published on Feb 4, 2025 | Read: 3 Mins

The State and Local Tax (SALT) deduction is a rule in the U.S. tax system that lets people who itemize their taxes subtract what they pay in state and local taxes—like income taxes, property taxes, or sales taxes—from their federal taxable income.

In simple terms, it helps prevent people from being taxed twice on the same money: once by their state and again by the federal government.

The $10,000 Cap

Before 2018, there was no limit to how much you could deduct for state and local taxes. But when the Tax Cuts and Jobs Act (TCJA) passed in 2017, it added a cap: you could only deduct up to $10,000 ($5,000 if married filing separately).

This change hit people in high-tax states like California, New York, and New Jersey especially hard. For many, $10,000 covered only a fraction of what they paid in property and income taxes. As a result, their federal tax bills rose, and many felt it was unfair.

The “One Big Beautiful Act”

The One Big Beautiful Act was created to fix that issue. It raised the deduction limit and added new rules to make the system fairer.

Under this act:

• The SALT deduction cap increases from $10,000 to $40,000 for most taxpayers.
• For people earning above roughly $500,000, the deduction begins to shrink as income goes up.
• The higher cap is temporary and will eventually revert to the old limit unless Congress extends it.

This new setup offers relief to middle-class and upper-middle-class taxpayers, while keeping some limits for the wealthiest households.

Who Benefits the Most

Homeowners in high-tax areas are the biggest winners because they often pay more than $10,000 in property and income taxes every year. Middle-income families also see noticeable savings, while high-income households benefit less if their income triggers the phase-out.

People living in states with lower taxes, or those who take the standard deduction instead of itemizing, won’t see much difference.

Effects on Housing and Local Economies

When the $10,000 cap was first introduced, owning homes in high-tax areas became more expensive. Home prices grew more slowly because buyers knew they couldn’t deduct as much in taxes.

By raising the deduction limit, the new law helps support property values and makes living in high-tax states a bit more affordable again. It can also reduce the incentive for families to move away from high-cost states in search of lower taxes.

The Phase-Out Explained

The “phase-out” means that as a person’s income rises, the extra deduction gradually decreases. For example, a couple earning $400,000 could take the full $40,000 deduction, while someone earning $600,000 might get only $25,000. By the time income reaches $1 million, the deduction may drop back to the old $1

This keeps most of the tax relief focused on middle- and upper-middle-income households rather than the very wealthy.

Broader Impacts

Expanding the SALT deduction helps taxpayers but also means the federal government collects less revenue. That money has to be made up elsewhere, either through new taxes, more borrowing, or spending cuts.

State and local governments benefit indirectly, since the higher deduction makes local taxes feel less burdensome to residents. However, opinions are divided: some people think the change is fair because it restores balance for high-tax states, while others believe it mainly helps richer taxpayers.

The Temporary Nature of the Change

The expanded deduction under the One Big Beautiful Act won’t last forever. The higher $40,000 cap is set to expire after a few years unless lawmakers decide to renew it. That uncertainty may lead some people to adjust their finances in the short term, like paying property taxes early or timing certain deductions before the cap drops again.

The Bottom Line

The SALT deduction might sound like a small detail in the tax code, but it affects millions of Americans. The One Big Beautiful Act raises the limit and gives meaningful relief to taxpayers in high-cost states. It helps homeowners, supports local housing markets, and evens out some of the differences between high-tax and low-tax regions.

Still, it comes with trade-offs: it reduces federal revenue and benefits people who itemize, which generally means those with higher incomes.

Overall, the act represents a major attempt to make the tax system fairer for people living in expensive parts of the country—showing how even one adjustment in tax policy can ripple through households, housing markets, and state economies.