Potential Tax Relief for Residents in High-Tax States
If you live in a state with high taxes, you might experience some relief regarding income and property taxes in 2025. This comes as a result of recent changes introduced by President Trump’s significant legislative measure often referred to as the “Big and Beautiful Bill.”
This multi-trillion dollar bill has temporarily adjusted the federal deduction limit for state and local taxes, commonly known as SALT. Starting in 2025, the SALT deduction will reach a maximum of $40,000, compared to just $10,000 in 2024. This deduction encompasses both state and local income taxes as well as property taxes. For those who choose to itemize their tax deductions, this presents an opportunity to claim the SALT deduction.
The $40,000 cap will increase by 1% each subsequent year through 2029, after which it reverts to $10,000 in 2030. Essentially, this means there’s a small window of five years to take advantage of a higher tax break.
Joanne May, a certified financial planner and CPA with Forest Asset Management in Riverside, Illinois, has spoken with clients who regularly face high state and local taxes. Interestingly, it’s important to note that a significant number of taxpayers—around 90%—don’t actually claim the SALT deduction since they don’t itemize. However, experts assert that these tax cuts will mostly benefit higher-income homeowners.
States like New York, California, New Jersey, Massachusetts, and Connecticut are expected to see the largest tax reductions as a result of the increased SALT limits. A recent analysis suggested that the median savings for residents in these states could exceed $3,000.
Maximizing Your Deductions
One hurdle when claiming the SALT deduction is ensuring that your total deductions—like charitable contributions and medical expenses—exceed the standard deduction. For 2025, the standard deduction stands at $15,750 for single filers and $31,500 for married couples filing together.
To surpass these thresholds, financial experts recommend strategies like prepaying property taxes for 2026 before the year ends. Abigail Rose, a CFP and director of tax planning at Keeler & Nadler Family Wealth in Dublin, Ohio, suggests that combining this with larger charitable donations through donor-advised funds can be effective. This approach allows donors to receive an immediate tax deduction while keeping a sort of “charity checkbook” for future donations.
Understanding the “SALT Torpedoes”
Starting in 2025, the $40,000 SALT deduction will begin to phase out when modified adjusted gross income tops $500,000. Beyond $600,000, the SALT deduction limit significantly decreases to $10,000. Within that income bracket, some might encounter “salt torpedoes,” a term some experts use to describe artificially inflated tax rates where certain deductions are lost even as income increases.
Joanne May emphasizes the importance of doing the math in these scenarios, noting, “We have some interesting plans for that.” For instance, self-employed individuals might stagger their income and expenses to reduce their 2025 MAGI if necessary. However, for W-2 employees, this can be more challenging.
That said, experts suggest that if you’re teetering on the edge of the MAGI limit, there could be ways to avoid having to sell investments or make adjustments like switching to a year-end Roth IRA to elevate your income.
