SALT Tax Deductions: Maximize your Itemizations in 2025

The State and Local Tax (SALT) deduction allows you to reduce your federal taxable income by deducting certain state and local taxes you've already paid.

With recent changes to the tax law, knowing how this deduction works is more important than ever for maximizing your tax savings.

The SALT deduction stands for State and Local Tax deduction. It's a federal tax break that lets you subtract certain state and local taxes from your income before calculating your federal tax bill. This helps prevent double taxation by ensuring you're not paying federal taxes on money already paid to state and local governments.

The SALT deduction includes three main types of taxes:

To claim the SALT deduction, you must itemize deductions on Schedule A of your federal tax return instead of taking the standard deduction. This means the SALT deduction is most valuable when your total itemized deductions exceed the standard deduction amount.

Prior to 2018, there was no limit on the amount of state and local taxes you could deduct. The Tax Cuts and Jobs Act of 2017 changed this by implementing a $10,000 cap ($5,000 for married filing separately). This cap significantly impacted taxpayers in high-tax states like New York, California, and New Jersey.

Good news for 2025: The "One Big Beautiful Bill" (also called the Working Families Tax Cut Act) has temporarily increased the SALT cap to $40,000 for most filers ($20,000 for married filing separately). This quadrupled cap will remain in effect through 2029, with small annual increases of 1% each year.

After 2029, the SALT cap is scheduled to revert to $10,000 unless Congress takes further action.

The SALT deduction is particularly valuable for:

If you own a home, you likely pay property taxes that can be included in your SALT deduction. Homeowners who also itemize mortgage interest may find it beneficial to itemize rather than take the standard deduction.

People living in states with higher income tax rates and property values (like California, New York, New Jersey, and Connecticut) typically have more state and local taxes to deduct.

With the increased $40,000 cap for 2025, many more taxpayers who previously couldn't benefit from the full amount of their state and local taxes will now be able to deduct more, potentially making itemizing worthwhile even if they previously took the standard deduction.

Our tax experts can help you determine if itemizing with the SALT deduction makes sense for your situation and maximize your potential tax savings.

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State and local income taxes withheld from your paycheck (shown on your W-2) or paid through estimated tax payments. You can also deduct mandatory contributions to state benefit funds.

Real estate taxes based on the assessed value of your property. These must be assessed uniformly at a similar rate on all real property in your community.

Instead of income taxes, you can choose to deduct state and local sales taxes. This is especially beneficial if you live in a state with no income tax or made large purchases during the year.

Not all taxes qualify for the SALT deduction. Here are some common taxes that cannot be deducted:

Let's look at four examples to see how the SALT deduction works in different situations:

Sarah lives in New York and owns a home. Her situation:

Under the old $10,000 cap: Sarah could only deduct $10,000 of her $33,000 in state and local taxes.

Under the new $40,000 cap for 2025: Sarah can deduct her full $33,000 in state and local taxes, potentially saving thousands on her federal taxes.

Michael rents an apartment in Texas (no state income tax). His situation:

Impact: Michael can deduct his $2,500 in sales taxes. However, since this amount is likely less than the standard deduction ($13,850 for single filers in 2024), he would probably take the standard deduction instead of itemizing unless he has other significant deductions.

The Johnsons are married and live in California. Their situation:

Impact: Since their MAGI exceeds the $500,000 threshold by $60,000, their SALT cap is reduced by $18,000 (30% of $60,000). Their cap becomes $22,000 ($40,000 - $18,000), so they can deduct $22,000 of their $55,000 in state and local taxes.

James and Emma file separately. James's situation:

Impact: Under the 2025 rules, James's SALT cap is $20,000 (half the $40,000 cap for joint filers). He can deduct $20,000 of his $22,000 in state and local taxes.

Here are some effective strategies to help you maximize your SALT deduction:

Consider "bunching" your state and local tax payments in years when you plan to itemize. For example, you might pay your fourth-quarter estimated state income tax payment in December instead of January, or pay your property tax bill that's due in January before December 31st.

Important: You can only deduct property taxes that have been officially assessed during the tax year. Prepaying taxes that haven't been assessed yet won't qualify for the current year's deduction.