SALT Deduction Cap Raised to $15,000 Starting 2025: Tax Relief for Some, but Questions Remain

The "SALT Fairness for Working Families Act" bumps up the limit on how much you can deduct in state and local taxes (SALT) on your federal return. Instead of the current $10,000 cap, individuals can deduct up to $15,000 starting in the 2025 tax year (SEC. 2). The main goal? Provide some tax relief, especially for folks in high-tax states.

Tax Break Breakdown

The bill directly changes the amount of state and local taxes – think property taxes and state income taxes – that you can subtract from your taxable income. This higher $15,000 limit kicks in after December 31, 2024 (SEC. 2). So, if you're a teacher in California with high property taxes or a construction worker in New York paying significant state income taxes, this could mean a smaller federal tax bill.

For example, imagine a nurse in New Jersey currently paying $14,000 in property taxes. Under the current law, they can only deduct $10,000. With this change, they could deduct the full $14,000, potentially lowering their federal tax burden. But, if you are self employed in a state like Texas with no income tax, and your property taxes are under the $10,000, this won't change much for you.

The Fine Print

While the bill offers a bigger deduction, it's worth noting that it mainly benefits those who itemize. If you usually take the standard deduction, this change won't affect you. Also, while the bill is pitched as helping "working families," a larger deduction often means bigger savings for higher earners. It's simple math: those paying more in state and local taxes have more to deduct.

There is also the question of how this impacts the overall federal budget. A larger deduction means less tax revenue coming in. This could lead to a bigger national debt, or maybe even cuts to federal programs down the line. It's like getting a discount now, but potentially paying for it later in a different way. The bill doesn't spell out how this revenue loss would be handled.

Real-World Ripple Effects

This change could make living in high-tax states a bit more appealing, which might be a win for real estate markets in those areas. However, it might also encourage states to keep taxes high, knowing residents can deduct more on their federal returns. It is a balancing act, and it is not clear yet exactly how it will all shake out on the ground.