The new SALT cap: 2025 tax relief may make itemizing deductions worthwhile

by J. Christian Manalli, Partner, SFBBG

J. Christian Manalli is a partner in the Chicago law firm of Schoenberg Finkel Beederman Bell Glazer LLC. Manalli concentrates his practice on federal tax, estate planning, probate and general business matters. Manalli can be reached at 312- 648-2300, or by email at christian.manalli@sfbbg.com.

The tax landscape for homeowners and high-income earners underwent a significant transformation with the enactment of the One Big Beautiful Bill Act (OBBBA), signed into law on July 4, 2025. For nearly a decade, taxpayers have been constrained by a rigorous $10,000 limit on state and local tax (SALT) deductions, a cap originally introduced by the Tax Cuts and Jobs Act of 2017. The 2017 legislation increased the standard deduction while simultaneously placing a $10,000 ceiling on the combined deduction for property, sales and income taxes, impacting homeowners and high-income earners, especially in states that impose an income tax.

Beginning with the 2025 tax year, this $10,000 cap has been increased to $40,000 for most individual filers and those married filing jointly, providing a much-needed reprieve for those whose local tax burdens far exceed the previous limit. For taxpayers who are married but choose to file separately, the new limit is set at $20,000. This expansion is not permanent in its current form, as the cap is scheduled to increase by roughly 1% annually through 2029 before reverting to the original $10,000 limit in 2030 unless further legislative action is taken.

While the increased cap offers broader eligibility for itemizing, it does include an income-based phase-out for those at the top of the earnings spectrum. For the 2025 tax year, the full $40,000 deduction begins to diminish once a taxpayer’s modified adjusted gross income (MAGI) exceeds $500,000 (or $250,000 for those married filing separately). In these instances, the cap is reduced by 30 cents for every dollar of income above the threshold, though the law ensures the deduction will not fall below the original $10,000 “floor” regardless of how high the income rises.

Because the standard deduction for 2025 remains historically high—at $15,750 for individuals and $31,500 for joint filers—taxpayers should evaluate whether their total itemized expenses, including this expanded SALT allowance, mortgage interest and charitable gifts, now outweigh the benefit of the standard deduction.

For many who have simply taken the standard deduction for the past seven years, the 2025 shift may finally make it mathematically advantageous to return to itemizing on Schedule A.