New Bill Raises State and Local Tax Deduction Cap to $100K, $200K for Joint Filers, Starting 2025

The "SALT Fairness and Marriage Penalty Elimination Act" changes a key part of the federal tax code related to how much you can deduct for state and local taxes (SALT). Starting after December 31, 2024, the bill bumps up the deduction limit to $100,000 for individuals and $200,000 for joint returns (SEC. 2). Basically, it's letting people subtract more of their state and local tax payments from their federal taxable income.

Tax Deduction Limits: The New Rules

This bill directly amends the Internal Revenue Code to raise the cap on SALT deductions. If you're single and pay a lot in state and local taxes—think property taxes in places like California or New York, or high state income taxes—you could deduct up to $100,000. For married couples filing jointly, that cap doubles to $200,000. This is a significant increase, especially for those in high-tax states. For example, a software engineer in Silicon Valley with high property taxes might see a noticeable drop in their federal tax bill.

Real-World Impact: Who Benefits?

This change mainly helps people who itemize their deductions, rather than taking the standard deduction. Think of a teacher in New Jersey with a combined state income and property tax bill over the old limit. Under this new rule, they could potentially deduct more, lowering their federal tax burden. Or consider a small business owner in a high-tax city—this could free up some cash flow by reducing their overall tax liability. However, it's worth noting that those with higher incomes and property values in high-tax states are likely to see the biggest benefits.

Potential Challenges

While this sounds good for some taxpayers, it's not without potential downsides. The bill could mean less revenue for the federal government. Also, folks might try to reclassify income to maximize their SALT deductions, which adds complexity to tax prep (SEC. 2). Plus, there's the question of fairness—this change could disproportionately benefit wealthier taxpayers who already have higher deductions.

Connections

The bill modifies a section of the Internal Revenue Code dealing with itemized deductions. It's a direct response to the previous limits placed on SALT deductions, which hit taxpayers in high-tax states particularly hard. This new act essentially loosens those restrictions, offering a potential tax break for many, but primarily benefiting those with higher incomes and property values in states with high taxes.