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Tax Byte
The One, Big, Beautiful Bill Act (OBBBA) enacted in July 2025 raises the federal SALT (state and local tax) deduction limit from $10,000 to $40,000 through 2029, offering significant tax relief for residents of high-property-tax states. This change coincides with a slight increase in the now-permanent TCJA standard deduction ($15,750 for single filers and $31,500 for joint filers) encouraging many taxpayers to reassess whether itemizing deductions is beneficial. However, the enhanced SALT limit begins phasing out (never lower than $10,000) at a modified adjusted gross income (MAGI) of $500,000 and is scheduled to revert to $10,000 in 2030.
Filing Status Note
The $40,000 upper limit and $10,000 lower limit are the same for all filing statuses except married filing separate (MFS), where the limits are half – $20,000 and $5,000. The MAGI phase out is also the same for all filing statuses, except the MFS phase out begins at $250,000.
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Who Benefits Most?
The taxpayers who will benefit most are middle and upper-middle-income homeowners in high-tax states such as New Jersey, New York, California, and Connecticut. Notably, around 20% or more of properties in these states pay annual property taxes exceeding $10,000. In the top 2 metro areas nationwide (in CA and NY-NJ), almost 50% of homeowners pay more than $10,000 in property taxes. However, it isn’t clear how many of these homes are owned by high-income earners near or above the $600,000 MAGI threshold who may see limited benefit due to the phaseout.
| Top 10 States with Highest Share of Properties Taxed Over $10,000 | |
|---|---|
| NJ | 39.90% |
| NY | 25.90% |
| CT | 19.40% |
| CA | 19.30% |
| MA | 18.40% |
| NH | 16.30% |
| DC | 15.60% |
| IL | 13.70% |
| TX | 12.40% |
| RI | 9.30% |
| Top 10 Metros with Highest Share of Properties Taxed Over $10,000 | ||
|---|---|---|
| San Jose-Sunnyvale-Santa Clara, CA | 47.90% | |
| New York-Newark-Jersey City, NY-NJ | 47.80% | |
| San Francisco-Oakland-Fremont, CA | 40.90% | |
| Bridgeport-Stamford-Danbury, CT | 39.30% | |
| Kiryas Joel-Poughkeepsie-Newburgh, NY | 37.50% | |
| Trenton-Princeton, NJ | 35.80% | |
| Nantucket, MA | 35.50% | |
| Austin-Round Rock-San Marcos, TX | 32.00% | |
| Jackson, WY-ID | 28.70% | |
| Santa Cruz-Watsonville, CA | 28.10% | |
Tax Planning Ideas
Professionals should revisit itemization strategies with clients, especially those in high-tax areas or whose SALT payments now exceed the standard deduction.
- Bundle charitable donations
- Capture medical expenses
- Accelerate other deductible expenses
In addition, consider deferring income, managing capital gains, delaying Roth conversions, or shifting bonuses to remain under the phaseout threshold. Documentation and record-keeping will be crucial.
- All phaseouts create higher effective tax rates within the phaseout range. During the SALT deduction phaseout (occurring between $500,000 and $600,000 of income), the effective tax rate increases from 35% to 45.5%. This happens because each additional dollar of income is not only taxed at the marginal rate, but also triggers the loss of $0.30 in SALT deduction benefits, creating a compounding tax effect.
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