State and Local Tax Deduction: What the New Cap Means for You in 2025
The New SALT Rules: What Every Homeowner and Small Business Should Know
If you’ve ever looked at your tax return and thought, “How can I possibly owe this much?”—you’re not alone. Homeowners and families often feel the state and local tax deduction pinch the most, especially when juggling property taxes, state income taxes, and everything in between.
But 2025 brings a major change. Thanks to the newly signed One Big Beautiful Bill (OBBB), the long-standing $10,000 cap on the SALT deduction is getting a facelift. This may sound like just another line item buried in the tax code, but the truth is, understanding this change could mean real savings for your household or small business.
Before your eyes glaze over at the thought of tax talk, don’t worry—we’re breaking it down the AccountAbility way: plain language, practical examples, and a dash of humor to make it all go down a little easier.
What’s Actually Changing with the SALT Deduction Cap
Let’s rewind a bit. The SALT deduction—short for state and local tax deduction—has been around for decades. It lets you deduct what you’ve paid in state income taxes, local property taxes, or sales taxes from your federal taxable income. For years, there was no strict cap, meaning if you lived in a high-tax state (looking at you, New York, California, Massachusetts), your deduction could be significant.
Then came the 2017 Tax Cuts and Jobs Act (TCJA), which slammed the brakes on that by limiting the SALT deduction to $10,000 per year ($5,000 if married filing separately). For many taxpayers, especially homeowners in high-cost states, that cap stung. You could pay $20,000 in property taxes and still only deduct half of it.
Fast forward to 2025, and the One Big Beautiful Bill has finally given that cap a much-needed update. Here’s what’s new:
Higher Cap Amount: The SALT deduction cap has been raised from $10,000 to $20,000 for individuals and $40,000 for married couples filing jointly.
Phase-In Period: This increase applies for tax years 2025 through 2028, after which lawmakers will reassess.
Adjusted for Inflation: The cap will also be indexed for inflation, meaning it can adjust slightly each year to reflect economic changes.
This might not sound groundbreaking, but if you’ve been frustrated by the old limits, this is a breath of fresh financial air.
Why This Matters for Families and Small Business Owners
If you own a home, live in a state with high property taxes, or run a small business, this update could have a direct impact on your bottom line. Let’s break it down by group.
For Homeowners and Families
Say you’re a married couple living in New Hampshire with a home assessed at $650,000. Your property taxes alone might top $12,000, and if you’re also paying a few thousand in state income taxes, you were previously losing out on a big chunk of potential deductions.
Now, under the higher SALT cap, you could deduct up to $40,000 in total state and local taxes. That’s four times more than before—and it could translate to hundreds or even thousands of dollars in federal tax savings, depending on your income level and other deductions.
If you’ve been choosing the standard deduction because itemizing didn’t make sense under the old limits, 2025 may be the year to revisit that. With the higher SALT threshold, itemizing could finally work in your favor again.
For Small Business Owners
If you’re self-employed or own an LLC taxed as a pass-through entity, you may already be familiar with the workaround many states created: the Pass-Through Entity Tax (PTE) election. This allows business owners to pay state taxes at the entity level, effectively bypassing the SALT cap for personal returns.
Now, with the new, higher deduction limit, this strategy may need a second look. Depending on your state and income level, the PTE election might still be beneficial—or it might make more sense to claim the higher personal SALT deduction directly.
This is where working with a tax professional becomes key. The coordination between your personal and business taxes is delicate, and choosing the right strategy could make a meaningful difference.
Planning Ahead: How to Make the Most of the New Deduction
Understanding the rules is one thing; using them to your advantage is another. Here’s how to ensure you’re not leaving money on the table under the new SALT cap.
1. Review Your State and Property Tax Payments
Take a look at your property tax bills and your state income tax withholdings. Are you hitting the new limit? Are your payments evenly spread throughout the year, or could adjusting the timing work in your favor?
For example, prepaying part of your property taxes before December 31 may allow you to capture a larger deduction in 2025—especially if your income fluctuates.
2. Revisit Your Filing Status
The new cap makes filing jointly even more attractive for married couples, but there are exceptions. If one spouse has significantly higher state tax liabilities, or if you live in a state that taxes separately, it might still be worth running both scenarios.
A quick tax projection can help you decide whether married filing jointly or married filing separately provides the best result under the new rules.
3. Evaluate Standard vs. Itemized Deductions
For the last several years, many taxpayers defaulted to the standard deduction because the $10,000 SALT cap made itemizing less beneficial. But now that you can deduct more, you might find that itemizing offers a better deal.
If you also have mortgage interest, charitable donations, or medical expenses, itemizing could become the clear winner again.
4. Coordinate with Business Taxes
If you’re a small business owner, review your PTE elections and payroll structures with your accountant. You may not need as many complex workarounds under the higher cap, but it’s still important to optimize the balance between business-level and personal-level deductions.
5. Work with a Tax Professional (Like Us!)
This change is one of those “sounds simple, actually complex” scenarios. The rules are packed with nuances that can vary based on your income, state, and filing strategy. Having a professional review your situation can ensure you’re maximizing your deductions and staying compliant with IRS guidelines.
At AccountAbility, we’ve been helping families and small business owners make sense of tax law for over 20 years. We speak fluent IRS—but we translate it into plain English (and sometimes dad jokes) so you actually know what’s going on.
The Big Picture: Turning Confusion into Opportunity
The SALT deduction has always been a source of frustration for taxpayers—especially those who felt penalized for living in high-tax states or investing in their homes. But with this new expansion, 2025 offers a chance to regain some of that lost ground.
Yes, the details can be confusing. Yes, it might take a little number crunching. But understanding the state and local tax deduction rules now means you can make smarter choices later—choices that could save you thousands.
So whether you’re a homeowner trying to make sense of property taxes, or a business owner juggling state filings, this is your year to take a closer look.
Don’t Go It Alone—Let’s Figure It Out Together
The tax code doesn’t have to be scary. You just need the right people in your corner (preferably ones who love spreadsheets more than they should).
Want to know how the new SALT cap impacts you? Join our bi-weekly Open Mic Tax Forums—a relaxed space to ask questions, get clarity, and maybe even laugh a little about taxes. Or, if you’re ready for one-on-one guidance, schedule your free, zero-pressure consultation today.
Visit accountabilitytab.com/contact—and let our team of tax nerds help you keep more of what you earn.
