Senate Republicans passed changes to the federal deduction for state and local taxes, known as SALT, on Tuesday, a crucial part of President Donald Trump’s “big, beautiful bill.”
In the Senate’s version of the reconciliation bill, pushed heavily by House Republicans, the SALT deduction would allow people to deduct up to $40,000 per year for five years from their federal taxes. Once an individual’s annual income hits $500,000, the SALT deduction phases out.
Recommended Stories
- Fireworks advocacy group warns of shortage for Fourth of July next year
- July 4th gas prices to hit lowest level in four years as 72.2 million expected to travel
- Scott Bessent values 'market-based indicators' over Powell influence
While the bill is still awaiting a final vote in the House, Republicans in the lower chamber are expected to pass it by July 4, meeting Trump’s self-imposed deadline.
If and when the bill passes, here’s what the new SALT deduction provisions mean for you:
What does SALT mean?
When they file, taxpayers have two choices: the standard deduction or the itemized deduction, which includes SALT — whichever is greater. In tax year 2025, the standard deduction was $15,000 for single filers and $30,000 for married couples filing jointly, with both amounts increasing from the previous year due to inflation.
The SALT deduction enables taxpayers to deduct all or a portion of their state and local taxes from their federal taxable income. Local and state income taxes can be deducted from paychecks if someone is a W-2 employee or from estimated tax payments if he or she is self-employed.
People can also write off sales tax and annual property taxes, but they must choose which tax to write off: local income taxes or local sales taxes.
Any taxpayer is eligible to take the SALT deduction. When it was first enacted in 1913, taxpayers didn’t have a cap that limits how much they could write off. But the Tax Cuts and Jobs Act, which passed in 2017 during Trump’s first term, imposed a $10,000 cap set to expire after this year.
The cap has created trouble for high-tax states, such as New York, New Jersey, and California, because residents are unable to deduct more than $10,000 for SALT, which includes their income, property, and sales taxes, according to NBC News.
What are the changes to the bill?
The original iteration of Trump’s reconciliation bill looked slightly different from the version that passed the Senate.
Before the changes, Trump proposed raising the SALT deduction cap to $30,000 for couples and $15,000 for individuals. If a taxpayer’s income was above $500,000, his or her deduction would be reduced to $10,000. The cap, according to the legislation, would be effective from 2025 to 2028.
Additionally, the plan included restrictions on loopholes in the deduction. Pass-through entity taxes allow people to pay state taxes at the entity level, which allows unlimited deductions. Trump’s provisions worked toward limiting or eliminating the effectiveness of the taxes, starting in 2026.
Trump’s original reconciliation bill passed the House on May 22 but proposed significant changes to the SALT deduction: Notably, the new SALT cap would rise from $10,000 to $40,000 for most taxpayers.
Senate Republicans tried to negotiate lowering the cap, but the SALT Caucus remained firm about the $40,000 cap and threatened to vote against the entire bill if it was decreased in the Senate.
Senate Republicans decreased the cap’s longevity, changing it to last only five years before reverting to the current $10,000 limit, a significant departure from the House’s proposal of the cap lasting until 2033.
Despite the five-year expiration date, the Senate’s SALT relief is roughly 10% larger than in the House’s original proposal, according to an analysis from the Committee for a Responsible Federal Budget. The SALT deduction is projected to cost $325 billion, a $125 billion increase from the proposed House bill, the group estimates.
The reduction of itemized deductions for certain taxpayers in the 37% income tax, seen in the Senate version of the bill, could lower the benefit of a higher SALT cap.
How do the changes affect you?
Higher earners with high property taxes will benefit the most from the deduction cap raise, according to a May analysis from the Tax Foundation. But 90% of taxpayers will not be affected by these changes, according to economists.
The SALT deduction is a claim that people in the middle class typically do not file on their federal taxes, according to Preston Brashers, a tax policy research fellow at the Heritage Foundation, in an interview with Fox Business.
“The $40,000 threshold is not a benefit for middle-income or average Americans in any state,” Adam Michel, the director of tax policy studies at the Cato Institute, told Fox Business. “For most Americans, especially those in low- and middle-income brackets or in states with lower taxes, it does very little, or nothing.”
SALT CAUCUS LIKELY TO KEEP GAINS DESPITE LEAVING SOUR TASTE IN FREEDOM CAUCUS MOUTHS
The new proposed SALT provisions will also protect a SALT cap workaround for businesses, allowing owners to ignore the $10,000 cap.
When would the change take effect?
If the bill passes in the House and lands on Trump’s desk by July 4, the new SALT cap provisions are expected to roll out in 2025. An exact date is unknown.