Beneficiaries and non-beneficiaries of the expanded SALT deduction
**Headline:** Temporary Increase in SALT Deduction Cap Offers Relief to Middle-Income Taxpayers and Pass-Through Business Owners
The recently enacted tax-and-spending-cuts law has brought significant changes to the state and local tax (SALT) deduction, offering relief to middle- to upper-middle-income taxpayers and pass-through business owners. Starting from 2025, the SALT deduction cap will be increased from $10,000 to $40,000, a substantial boost that will last through 2029.
The increased cap, however, comes with income phaseouts for taxpayers with modified adjusted gross income (MAGI) of $500,000 or more, reducing benefits for high-income filers but still providing some relief compared to the original $10,000 cap.
Partners and shareholders in pass-through entities, who typically pay the businesses' taxes on their individual returns, will also benefit from the removal of SALT limits on business taxes, preserving their ability to deduct state income taxes at the business level.
In 2025, filers with MAGI under $500,000 will benefit most, able to deduct up to $40,000 in SALT payments, a substantial increase that will ease tax burdens, especially in high-tax states like California and New York. Pass-through business owners will also benefit from the removal of SALT limits on business taxes.
It is important to note that this benefit is temporary, ending after 2029 and reverting back to the $10,000 limit in 2030. The standard deduction has been expanded for 2025 to $15,750 for single filers, $23,625 for heads of household, and $31,500 for married couples filing jointly.
The SALT deduction rules dictate that filers may deduct either their state and local income taxes or their state and local general sales taxes, and also their property taxes. However, the SALT deduction will be limited to $10,000 for anyone whose MAGI is $600,000 or more.
The increased cap may only help a minority of federal income tax filers, as many pass-through entities have workarounds that allow them to pay the state taxes and get an unlimited deduction, thereby avoiding the SALT cap. Filers who do not itemize their deductions will still benefit from the higher standard deduction and the fact that taking it will reduce their tax bill more than if they itemized.
The rules that dictate who may deduct up to $40,000 in state and local taxes would apply to partners and shareholders in pass-through entities if the entities pay the taxes. Earlier versions of the tax-and-spending-cuts package considered curtailing the benefits of state workarounds for specified trades and businesses, but the final Senate version did not.
Overall, the law temporarily raises the SALT deduction cap, primarily benefiting middle- to upper-middle-income taxpayers earning less than $500,000 a year and pass-through business owners, while offering limited relief for very high-income filers who face phaseouts of the increased cap.
In this context, the increased SALT deduction cap benefits not only middle- to upper-middle-income taxpayers but also pass-through business owners, as they can now deduct more state and local taxes, thereby reducing their overall tax burden. This change in finance is particularly significant for pass-through business owners because they often pay taxes on their individual returns, making the business impactful in their finance.
