OBBBA SALT Cap Changes: $40,000, Indexed Through 2029

#What the SALT cap is

The SALT (state and local tax) deduction lets itemizers deduct three things: state income taxes, state and local property taxes, and either state sales tax or state income tax, whichever is higher.

TCJA (2017) capped the total SALT deduction at $10,000 per return. This was a major change: pre-TCJA there was no cap. Taxpayers in high-tax states (California, New York, New Jersey, Connecticut, Illinois) felt it hard. So did people with high property taxes, like Texas property owners, despite having no state income tax. For both groups, the cap dramatically reduced their itemized deductions and pushed many to the standard deduction.

For most Texas ETS clients, the cap mattered most when property taxes alone exceeded $10K: common for $400K+ homes in Bexar, Travis, Williamson, Harris, Dallas, or Collin counties.

#What OBBBA did

OBBBA raised the cap from $10K to $40K starting in tax year 2025, with specific mechanics:

#The 4× expansion

For tax years 2025-2029, the SALT cap is $40,000 per return (or $40,000 indexed up by 1% annually starting in 2026).

The 1% annual adjustment is a modest growth rate, barely keeping pace with state-tax growth in high-tax states.

#The phase-down above $500K AGI

The $40,000 cap is NOT uniform across all income levels. Above $500,000 of modified AGI, the cap drops by 30 cents for each extra dollar. For most people, modified AGI is the same as AGI.

The expansion targets the broad “above-standard-deduction” middle.

#The 2030 reversion

Unless Congress acts before then, the SALT cap reverts to $10,000 in 2030 with no income limit. This is structured as a temporary expansion, not a permanent change.

For long-horizon planning, the SALT cap should be treated as a 5-year window of relief, not a permanent reset.

#What this means for ETS clients

#For Texas-based ETS clients

No state income tax in Texas, so the SALT deduction mostly captures property taxes. The change matters for:

Homeowners with $10K-$40K of annual property taxes: common in Bexar County ($400K-$1M+ homes), San Antonio area ($500K+ homes), and similar high-property-tax pockets. Pre-OBBBA, anything over $10K of property tax was lost to the cap. Post-OBBBA, the full property tax (up to $40K) is deductible.

Texas filers itemizing in 2025-2029: the deduction now reaches further, often making itemization more attractive than the standard deduction ($30K MFJ in 2025).

#For ETS clients in high-tax states

Clients in California, New York, New Jersey, Connecticut, Illinois, and similar states have substantial state income tax plus property tax. Pre-OBBBA cap of $10K barely covered them. Post-OBBBA $40K cap captures much more.

Example: New York couple with $300K AGI, $20K state income tax + $15K property tax = $35K SALT.

• Pre-OBBBA: $10K deductible (rest lost)
• Post-OBBBA: $35K deductible (entire amount under the $40K cap)
• At a 24% rate, $25,000 of extra deduction saves about $6,000. The real saving depends on your other deductions and the standard deduction.

#For very high-income ETS clients (above $500K AGI)

The phase-down hits you. If you’re at $700K+ AGI, your effective SALT cap is back to $10K. The expansion is targeted at the broader middle, not the top.

Retirement plan contributions, HSA contributions and business deductions can lower your AGI. Gifts to charity do not lower AGI, because you take them as itemized deductions.

#Planning moves under post-OBBBA SALT rules

Move 1: Re-evaluate itemize vs. standard deduction. The 2025 standard deduction is $31,500 for joint filers and $15,750 for single filers. With SALT at $40K (instead of $10K), itemization is now attractive for many more filers. Combine SALT with mortgage interest, charitable giving, and medical to maximize.

Move 2: AGI management for filers near $500K. If you’re earning $480-$520K, every dollar of AGI reduction matters. A few moves can help you stay under the phase-down threshold: maximizing retirement contributions (401(k), HSA, IRA), bunching charitable gifts in even years, and timing capital gains realization.

Move 3: Property tax payment timing (in states that allow it). You can deduct property tax in the year you pay it, but only once the bill has been issued. Paying an issued bill early can move it into this year. Paying a future year’s tax before it is billed does not count. Both years together must still fit under the cap.

Move 4: Don’t over-plan for permanence. The cap reverts to $10K in 2030. Don’t restructure your life around the SALT expansion. It’s a 5-year window. Long-term home-purchase, state-of-residence, and similar decisions should consider the post-2029 environment.

Move 5: Consider Pass-Through Entity (PTE) tax elections (where available). Many states with state income taxes created Pass-Through Entity tax workarounds during the original SALT-cap era (Connecticut, New Jersey, New York, California, etc.). These let pass-through business owners deduct state taxes at the entity level, bypassing the SALT cap. The OBBBA SALT changes don’t repeal PTE tax elections. They remain available as a layered strategy for high-income business owners in PTE states.

#Common questions

Does the SALT cap apply to married-filing-separately? Yes, but each MFS spouse gets only half. Each spouse who files separately gets a $20,000 cap, and a phase-down that starts at $250,000. Filing jointly is usually better.

Can I deduct property taxes on a second home? Yes, as part of the same SALT cap. Property tax on your primary residence and a second home counts toward the cap. Rental property tax is generally a Schedule E expense, outside the SALT cap.

What about state estimated tax payments? State income tax estimated payments are deductible as SALT in the year paid (for cash-basis taxpayers). Year-end timing matters, payments made by December 31 count for that year.

Does sales tax count instead of income tax? Yes. Filers can deduct either state income tax OR state sales tax (whichever is higher), plus property tax. For Texas, Florida, and other no-income-tax-state residents, sales tax + property tax is the typical mix.

Will the cap really revert to $10K in 2030? Unless Congress acts before then, yes. Tax history suggests there’s typically political pressure to extend such provisions, but legislation isn’t guaranteed. Plan with the assumption the reversion is real until proven otherwise.

Can my AGI be under $500K but still face phase-down via AMT? The Alternative Minimum Tax (AMT) and SALT cap are separate provisions. AMT doesn’t allow the SALT deduction at all. If you’re subject to AMT, SALT deduction is irrelevant. Most filers are not in AMT post-TCJA, but high-earners with significant SALT + private-activity bond interest still can be.

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If your AGI is $150K-$500K and you have $10K+ of state + local taxes, OBBBA likely changes whether itemization makes sense in 2025-2029. The Discovery call is the right next step. We model your post-OBBBA SALT position as part of every Tax Analysis engagement.