TEMPORARY PROVISIONS – Increased SALT Deduction
For this temporary increase in the State and Local Tax (SALT) deduction, the law defines Modified Adjusted Gross Income (MAGI) as Adjusted Gross Income (AGI) plus income earned by U.S. citizens or residents living abroad, income from Guam, American Samoa, or the Northern Mariana Islands, and income from Puerto Rico.
If you live or work in a high-tax state, the higher SALT deduction cap could provide meaningful relief beginning in 2025. Since 2018, most taxpayers could deduct no more than $10,000 in state and local taxes, even when they paid substantially more. The new law raises that cap to $40,000. As a result, many households can itemize again for the first time in years.
Taxpayers with MAGI under $500,000 ($250,000 if married filing separately) can deduct more property taxes, state income taxes, and local taxes. This larger deduction directly reduces federal taxable income. Depending on your tax bracket, the change could lower your federal tax bill by thousands of dollars.
The benefit begins to phase out once MAGI exceeds $500,000. As income rises, the allowable deduction gradually declines until it reaches the familiar $10,000 cap. Middle- and upper-middle-income households gain the most. Higher-income taxpayers receive limited relief.
For business owners, the law preserves the pass-through entity (PTE) workaround. Partnerships and S corporations deduct state taxes at the entity level, and the credit or deduction flows through to the individual owners. Owners in high-tax states often use this strategy to bypass the SALT cap entirely. Entity-level planning therefore requires careful attention.
Other provisions complicate the analysis. For example, the additional senior deduction phases out at lower income levels. Some taxpayers may benefit from the expanded SALT deduction while losing part of the senior deduction because income crosses the threshold.
These changes create both opportunities and risks. Your outcome depends on income, filing status, state taxes paid, and business structure. A CPA can evaluate whether itemizing now makes sense, calculate the effect of phase-outs, and coordinate SALT planning with senior deductions and other benefits. Proper coordination prevents one tax advantage from offsetting another.