Some U.S. homeowners may soon get a sizable tax break thanks to the massive budget package that was passed by the House early Thursday.
The legislation — dubbed the One Big Beautiful Bill Act — includes a provision that would lift the tax deduction cap for state and local taxes, or SALT, to $40,000 from its current $10,000 limit. That could provide tax savings for homeowners with high property taxes or who earn enough to have significant state income tax liabilities.
The SALT deduction cap was introduced by Mr. Trump in his 2017 Tax Cuts and Jobs Act as a way to offset that legislation’s tax breaks, such as its reduction in individual income tax rates. Prior to that law, there was no limit on how much in state and local taxes taxpayers could deduct from their federal income taxes.
The unlimited SALT deduction had been criticized by some policy experts as mainly benefiting upper-income homeowners in states with high taxes, such as New York and California. But with real estate values surging in recent years, more homeowners around the U.S. are now getting socked with higher property taxes and bumping against the SALT deduction limit, prompting some lawmakers to call for changes to the $10,000 cap.
The SALT deduction limit “really eliminated a fairly significant deduction for most taxpayers in Massachusetts, especially given how high property taxes can be here,” Boston tax attorney Dan Ryan told CBS News Boston.
The backers of the new bill “needed to keep Republicans in New York, New Jersey and California happy,” which led to the negotiation for a higher SALT limit, he added.
To be sure, the tax and spending bill could undergo more changes before it reaches President Trump’s desk. The measure must now go to the Senate, where some Republicans have already expressed opposition to certain aspects of the bill, such as Medicaid spending cuts.
What is the SALT deduction cap?
The SALT deduction cap was introduced in the 2017 Tax Cuts and Jobs Act, or TCJA, and capped the deduction at $10,000 for both single and married couples. The provision covers state income taxes, property taxes and sales taxes.
In 2017, the Treasury Department estimated that almost 11 million taxpayers in high-tax states like New York and New Jersey would forfeit $323 billion in deductions because of the new cap.
Some lawmakers criticized the deduction limit for its marriage penalty, given that married couples are subject to the same SALT deduction threshold as single filers. Typically, tax provisions are more generous for married couples because they are designed to cover two individuals. For instance, the standard deduction for married couples is $30,000 in 2025, double the $15,000 standard deduction for single filers.
What’s changing with the SALT deduction cap?
The House tax bill lifts the SALT deduction cap to $40,000, with the new threshold scheduled to take effect for the current 2025 tax year. An earlier version of the bill had proposed a $30,000 deduction limit, but some lawmakers pushed for a higher threshold to help more homeowners.
The change was hailed by Republicans from high-tax congressional districts. Rep. Mike Lawler of New York said in a social media post that the increased SALT limit would ease “the tax burden for middle-class and working families.”
“This includes annual increases for inflation and income caps to ensure this is not a handout for the uber wealthy,” Lawler added.
The full $40,000 deduction would only be available to filers with household incomes below $500,000. Those who earn above that amount would face a phaseout, although the deduction wouldn’t go lower than $10,000. Both the cap and the income limit would increase 1% per year over the next decade, according to a May 22 analysis from law firm Kutak Rock.
Who could benefit from the higher SALT cap?
People whose deductible expenses — including property taxes, state income taxes and mortgage interest — exceed their standard deduction could benefit from the higher SALT cap.
For instance, a married couple would need those costs to surpass their 2025 standard deduction of $30,000 to take advantage of the higher SALT cap. That’s because taxpayers typically claim whatever is higher — the standard deduction or their total itemized deductions — to maximize the amount they can tap to lower their federal tax liability.
“It will benefit homeowners, especially people who live in wealthier towns with higher property taxes, and higher income taxpayers,” Ryan, the tax attorney, told CBS News Boston.
High-income homeowners would be the most likely to qualify for the new deduction, with more than half of the benefit going to taxpayers making at least $400,000, according to the Tax Policy Center, a nonpartisan think tank.
How much would raising the SALT cap cost the U.S.?
If adopted, lifting the SALT cap would result in the federal government forgoing more tax revenue, policy experts say.
The $40,000 limit would result in a loss of nearly $334 billion in tax revenue over the next decade, when compared with keeping the $10,000 cap in place, according to an analysis from the Penn Wharton Budget Model, a University of Pennsylvania nonpartisan group that analyzes the fiscal impact of policy.
That adds to the cost of a bill that has been criticized by some experts and lawmakers as introducing new tax breaks that could outstrip any savings in the legislation and trillions to the U.S. debt.
The Penn Wharton Budget Model “has projected that America will face certain risk of a fiscal crisis within the next two decades, eroding household purchasing power, unless action is taken to reduce federal deficits,” Kent Smetters, head of the group, said in a email after the House passed the budget package.
