What Happened?

American's federal tax breaks for state and local taxes quadrupled for 2025, but only about one in eight of them are expected to claim it. The One Big Beautiful Bill Act, which President Donald Trump signed July 4, 2025, raised the cap on the state and local tax (SALT) deduction from $10,000 to $40,000.

The deduction lets people who itemize subtract the state and local income, sales and property taxes they pay from their federally taxable income. The full $40,000 applies to filers with modified adjusted gross income under $500,000, and it shrinks back to $10,000 for those at $600,000 or more. The $10,000 limit had been in place since 2018 under the Tax Cuts and Jobs Act.

Why Does It Matter To Me?

Whether the bigger cap helps you depends mostly on where you live and how much you earn. The Joint Committee on Taxation (JCT), Congress' nonpartisan tax scorekeeper, projects that 78% of the deduction's value for 2025 will go to filers with incomes of $200,000 or more.

The one in eight claiming it is down from nearly one in three in 2017, the year before the $10,000 cap took effect, according to a Congressional Research Service (CRS) report updated Friday, Sept. 25. Internal Revenue Service data cited in the report show the average SALT deduction in the five highest-tax states fell from $21,500 in 2017 to $9,100 in 2023, while the average in the five lowest-tax states dropped by only $200.

Both Sides, Now

Supporters argue a higher cap gives taxpayers in high-tax states more room to deduct what they pay locally, easing their federal tax bills. CRS also notes that limiting the deduction could lead state and local governments to spend less on public services, because the federal break absorbs part of what residents pay in those taxes.

Critics counter that the benefit flows mainly to higher earners, pointing to JCT's projections. They also cite the deduction's price tag: JCT estimates the SALT deduction as a whole will cost the federal government $298.4 billion in lost revenue from fiscal 2025 through 2029.

What Happens Next?

The $40,000 cap is temporary. It rises 1% a year through 2029, then drops back to $10,000 for everyone starting with 2030 tax returns. Keeping the higher limit would take a new law passed before then, but no vote to extend or change the cap is scheduled.

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