OBBBA Expands SALT Deductions: What It Means for You

Tax laws are always changing, and one of the biggest updates taxpayers need to know about is the One Big Beautiful Bill Act (OBBBA). This legislation expands the State and Local Tax (SALT) deduction, offering potential savings for many individuals—especially those living in high-tax states. For a deeper dive, check out our full OBBBA Tax Changes Guide for 2025.

What Changed with the SALT Deduction?

Under the 2017 Tax Cuts and Jobs Act (TCJA), the SALT deduction was capped at just $10,000 ($5,000 for married filing separately). This left many taxpayers—particularly homeowners in high-property-tax states—feeling the pinch.

Starting in 2025, the OBBBA raises the SALT deduction cap to $40,000 (or $20,000 for separate filers), with annual inflation adjustments beginning in 2026. However, this increase is temporary and is scheduled to expire after 2029 unless Congress extends it. You can learn more in our article on 2025 Tax Reform Explained Inside the One Big Beautiful Bill Act.

The Phase-Out Rule

The higher deduction comes with limits. If your modified adjusted gross income (MAGI) exceeds $500,000 ($250,000 if married filing separately), the deduction begins to phase out. At higher income levels, the benefit may be reduced back to the $10,000 minimum.

Expanded Examples: How It Works in Real Life

Example 1: Middle-Income Couple in California

• Filing Status: Married filing jointly

• MAGI: $300,000

• SALT Bill: $50,000 (mainly from property taxes on their San Diego home)

Since their MAGI is below the $500,000 phase-out threshold, they qualify for the full $40,000 deduction. Without OBBBA, they’d have been stuck with just $10,000.
👉 Net benefit: $30,000 more in deductions, potentially reducing federal tax liability by $7,200+ (assuming a 24% tax bracket).

Example 2: High-Earning Professionals

• Filing Status: Married filing jointly

• MAGI: $550,000

• SALT Bill: $60,000

They are $50,000 above the $500,000 threshold. The deduction is reduced by 30% of the excess income:
30% × $50,000 = $15,000 reduction.

So instead of $40,000, their deduction drops to $25,000.
👉 Net benefit: That’s still $15,000 more than under the old $10,000 cap, which could translate to $5,000+ in tax savings depending on their bracket.

Example 3: Ultra-High-Income Household

• Filing Status: Married filing jointly

• MAGI: $700,000

• SALT Bill: $70,000

They are $200,000 above the $500,000 threshold.
30% × $200,000 = $60,000 reduction.

$40,000 – $60,000 = negative, so they’re limited to the minimum $10,000 deduction.
👉 Net benefit: No change from the old rules. Their income level phases them out completely.

SALT Deduction Workarounds

Many states have introduced pass-through entity SALT workarounds, which allow businesses like partnerships, LLCs, and S-corporations to pay SALT taxes at the entity level. These payments are deductible business expenses and aren’t subject to the federal SALT cap, creating a significant planning opportunity.

Tax Planning Opportunities

With the right strategies, taxpayers can maximize their benefits:

• Spread capital gains over multiple years to stay below phase-out thresholds.

• Strategically time Roth IRA conversions.

• Leverage state-level SALT workarounds for business owners.

• If over 65, combine with the new senior bonus deduction.

Key Takeaways

• OBBBA boosts SALT deductions to $40,000 from 2025–2029.

• High earners may see limits due to the phase-out rule.

• State workarounds and proactive planning can help maximize savings.

• Proper strategy could significantly reduce taxable income.

Work With a San Diego CPA

Understanding these changes and applying the right strategies can save you thousands. At Allied Tax, our team of experienced San Diego CPAs specializes in tax planning, tax preparation, and business advisory services.

Whether you’re an individual taxpayer or a business owner, we’ll help you navigate the new SALT deduction rules and other opportunities in the tax code. Learn more in our detailed OBBBA Tax Changes Guide for 2025.

👉 Contact us today for expert San Diego tax preparation services and start planning smarter for 2025 and beyond.