New SALT Act Ends $10,000 Cap on State and Local Tax Deductions Starting in 2025

The SALT Deductibility Act is a straightforward piece of legislation with one massive goal: it repeals the $10,000 limit on the federal deduction for state and local taxes (SALT). Specifically, Section 2 of the bill deletes the cap from the Internal Revenue Code, meaning that starting in the 2025 tax year, you would once again be able to deduct the full amount of state income, sales, and property taxes you pay from your federal taxable income. It is a return to the way things were before 2017, effectively removing the ceiling that has frustrated many taxpayers in high-tax regions.

Uncapping the Deduction

For most people, this change hits home when they look at their property tax bill or their state income tax withholding. Under current law, if you pay $8,000 in property taxes and $7,000 in state income tax, you can only deduct $10,000 on your federal return—leaving $5,000 on the table. Under this bill, that same taxpayer could deduct the full $15,000. For a middle-class family in a state like New Jersey, New York, or California, this could mean a significant reduction in their federal tax bill. By removing the limit set in Section 164(b)(6), the bill essentially allows your federal tax liability to reflect the actual cost of living in your specific state.

The Federal Trade-Off

While the bill offers a break to individual taxpayers, it creates a different kind of pressure on the national level. Because the federal government would be collecting less revenue from those who itemize their deductions, the national deficit could see a noticeable uptick. This creates a situation where taxpayers in low-tax states—who might not have enough state taxes to even hit the old $10,000 cap—don't see any direct benefit, yet they live in the same economy that has to manage that increased federal debt. It is a classic policy tug-of-war between providing localized tax relief and maintaining a balanced federal budget.

Who Wins and Who Waits

The primary beneficiaries here are homeowners and high-earners who itemize their deductions rather than taking the standard deduction. If you are a software engineer in a high-tax city or a small business owner with a significant property footprint, this bill is a direct win for your wallet. However, if you are a renter in a state with no income tax, this legislation won’t change your tax filing experience at all. The bill is remarkably clear in its language, but the real-world impact is lopsided, favoring those in specific geographic areas while leaving the federal government to figure out how to fill the resulting revenue gap.