Ever wondered how to keep more of your hard-earned money when tax season rolls around? For folks in high-tax states like California or New York, the state and local tax (SALT) deduction has been a sore spot since it was capped at $10,000 back in 2017. But here’s the good news: for 2025, a new law has bumped that cap up to a whopping $40,000. That’s a game-changer for many taxpayers, especially if you’re juggling hefty property taxes or state income taxes. I’ve seen clients’ faces light up when they realize how much this could save them, but it’s not as simple as it sounds. Let’s dive into how you can make the most of this temporary boost and avoid some sneaky pitfalls.
Understanding the 2025 SALT Deduction Boost
The SALT deduction lets you subtract certain state and local taxes—like property taxes, income taxes, or sales taxes—from your federal taxable income, assuming you itemize deductions. The 2017 Tax Cuts and Jobs Act (TCJA) slapped a $10,000 cap on this deduction, which hit hard in states with steep taxes. Now, thanks to the One Big Beautiful Bill Act signed in July 2025, the cap has quadrupled to $40,000 for most fil Angelenos, this could mean thousands in savings for 2025 tax returns.
But there’s a catch. This generous cap comes with income phaseouts and a sunset clause, meaning it reverts to $10,000 in 2030. For now, though, it’s a golden opportunity—if you know how to play your cards right. Let’s break down the key strategies to maximize this deduction and keep your tax bill as low as possible.
Who Benefits Most from the New Cap?
Not everyone will see a big boost from this change. If you’re in a low-tax state or don’t itemize, the higher cap might not move the needle. But for high earners in states like California, New York, or New Jersey—where property taxes alone can exceed $20,000—the $40,000 cap is a lifeline. Think homeowners with pricey properties or small business owners with significant state tax bills. These folks are the ones who’ll feel the relief most.
The increased SALT cap is a significant opportunity for taxpayers in high-tax jurisdictions to reduce their federal tax liability.
– Tax policy analyst
The catch? If your modified adjusted gross income (MAGI) creeps above $500,000, the deduction starts shrinking. By $600,000, you’re back to the old $10,000 cap. This phaseout creates a tricky zone where strategic planning becomes critical, as we’ll explore.
Strategy 1: Double Up on Property Taxes
One clever move is to prepay property taxes. Back when the TCJA capped SALT at $10,000, some taxpayers prepaid their 2018 property taxes in 2017 to squeeze more out of the then-unlimited deduction. With the cap now at $40,000 through 2029, a similar strategy could work. For example, if you typically pay $20,000 in property taxes annually, consider paying two years’ worth—say, $40,000—in 2025 to max out the deduction.
This approach works best if you’re already itemizing and have enough eligible SALT expenses to hit the cap. It’s like front-loading your savings while the cap is high. Just make sure the taxes are “paid or accrued” in 2025 to qualify, per IRS rules.
- Check your property tax billing cycle—some jurisdictions allow prepayments.
- Ensure your total SALT expenses (property plus income taxes) reach $40,000.
- Confirm with a tax pro to avoid overpaying unnecessarily.
Strategy 2: Prepay State Income Taxes
If you’re self-employed or have investment income, you likely make quarterly estimated tax payments. The fourth-quarter payment for 2025 is due January 15, 2026, but paying it by December 31, 2025, could help you hit the $40,000 cap. This is especially useful if your state income taxes are hefty—say, $25,000 annually.
By combining a $20,000 property tax prepayment with a $20,000 state tax prepayment, you could claim the full deduction, potentially saving $14,000 at a 35% federal tax rate. That’s real money back in your pocket.
Timing your tax payments can be a powerful way to leverage the higher SALT cap before it sunsets.
– Financial planner
Beware the SALT Torpedo
Here’s where things get tricky. If your MAGI falls between $500,000 and $600,000, the SALT phaseout creates a so-called “SALT torpedo.” The deduction drops by 30 cents for every dollar of income over $500,000, hitting $10,000 at $600,000. This can push your effective federal tax rate as high as 45.5% in that income range.
Imagine you’re a married couple with $560,000 in MAGI and $40,000 in SALT expenses. Your deduction gets cut by $18,000 (30% of the $60,000 excess), leaving you with a $22,000 deduction. That’s still better than $10,000, but the phaseout stings.
| MAGI | SALT Deduction | Tax Savings (35% Rate) |
| $500,000 | $40,000 | $14,000 |
| $560,000 | $22,000 | $7,700 |
| $600,000 | $10,000 | $3,500 |
The lesson? Keep a close eye on your income to avoid this cliff. Sometimes, a small income bump can cost you thousands in lost deductions.
Managing Your MAGI to Stay Under the Phaseout
If you’re flirting with the $500,000 MAGI threshold, you can take steps to keep your income in check. Boosting pre-tax contributions to a 401(k) or HSA can lower your MAGI, preserving more of the SALT deduction. For example, maxing out a 401(k) at $23,000 in 2025 could keep you below the phaseout line.
Self-employed folks might consider a SEP-IRA, which allows contributions up to $69,000, depending on income. Avoid moves like Roth conversions or large asset sales that could push your MAGI into the danger zone.
- Max out pre-tax retirement contributions to lower MAGI.
- Time capital gains or bonuses to avoid the phaseout range.
- Consult a tax advisor to model your MAGI scenarios.
Pass-Through Entity Tax (PTET) Workarounds
Here’s a gem for business owners: the PTET workaround. Many states let pass-through entities like S-corporations or partnerships pay state taxes at the entity level. These payments don’t count toward your individual SALT cap, effectively bypassing the $40,000 limit.
Say your S-corp pays $30,000 in state taxes. That amount is deductible by the business, reducing your share of taxable income without eating into your personal SALT cap. The new law doesn’t restrict this strategy, though some states’ PTET rules may expire, so check annually.
The PTET strategy is a loophole that can unlock significant tax savings for business owners in high-tax states.
– Tax strategist
Itemizing vs. Standard Deduction
The higher SALT cap makes itemizing deductions more attractive, especially if your SALT expenses approach $40,000. For 2025, the standard deduction is $15,750 for singles and $31,500 for joint filers. If your total itemized deductions—SALT, mortgage interest, charitable giving—exceed these, itemizing could save you more.
Consider a California couple with $24,000 in state income taxes and $20,000 in property taxes. Itemizing lets them deduct $40,000, saving $14,000 at a 35% rate, far outpacing the standard deduction. Run the numbers to see what’s best for you.
The Sunset Clause: Plan for 2030
The $40,000 cap is temporary, dropping back to $10,000 in 2030. This sunset clause means you’ve got a five-year window to maximize savings. I’ve always found it frustrating when tax breaks come with expiration dates—it’s like a ticking clock on your planning. Consider accelerating deductible expenses into 2025–2029 to take full advantage.
Major purchases, like a second home in a high-tax state, could boost your SALT expenses during this period. Just weigh the long-term tax implications, as the lower cap could hit hard post-2029.
Other Tax Code Interactions
The SALT deduction doesn’t exist in a vacuum. The alternative minimum tax (AMT) can limit its benefits for some high earners, though fewer taxpayers face AMT post-TCJA. Also, a new 5% haircut on SALT deductions for those in the 37% tax bracket (taxable income above $626,350 for singles, $751,600 for joint filers) slightly reduces the deduction’s value.
For example, a $40,000 SALT deduction in the top bracket might be worth $37,838 after the haircut, still a solid savings. Always model these interactions with a tax pro to avoid surprises.
Navigating the complexities of the AMT and other rules is key to maximizing your tax savings in 2025.
Final Thoughts: Plan Early, Plan Smart
The 2025 SALT deduction increase is a rare opportunity for taxpayers in high-tax states to slash their federal tax bills. But with phaseouts, a temporary cap, and complex interactions with other tax rules, you need a solid strategy to make the most of it. I’ve seen too many clients miss out on savings due to poor planning. Don’t be one of them.
Start early—consult a tax professional now to model your 2025 tax scenario. Consider prepaying property and state income taxes, managing MAGI to avoid the phaseout, and leveraging PTET workarounds if you’re a business owner. With the cap sunsetting in 2030, the clock is ticking. Make 2025–2029 count.
In my experience, the taxpayers who benefit most are those who take a proactive approach. The $40,000 SALT cap is a golden opportunity, but it requires careful planning to maximize. Don’t leave money on the table—get ahead of the game in 2025.
