While we touched on the state and local tax (SALT) deduction changes earlier, the details are important – especially if you live in a high-tax state or own a business.
The Enhanced SALT Deduction (2025-2029)
The OBBBA significantly increases what you can deduct for state and local taxes:
The new limits:
- 2025: $40,000 maximum (up from $10,000)
- 2026-2029: Increases by 1% each year
- 2030: Back to $10,000
But There’s a Phase-Out
Higher-income taxpayers don’t get the full benefit:
How it works:
- Phase-out starts when your adjusted gross income hits $500,000
- Your SALT deduction reduces by 30% of every dollar over that threshold
- But it can’t go below the old $10,000 limit
Example: If your AGI is $600,000 (so $100,000 over the threshold):
- Your SALT deduction gets reduced by $30,000 ($100,000 × 30%)
- Your maximum becomes $10,000 ($40,000 – $30,000), not lower
Business Owners Have Options
If you own a partnership or S-Corporation, you might be able to work around these limitations entirely:
Pass-Through Entity Tax (PTET) elections:
- Your business pays state income tax at the entity level
- The business deducts this payment on its federal return (no limitation)
- You get a credit on your personal state return
- Effectively bypasses the individual SALT cap
Planning considerations:
- Elections typically must be made by March 15th
- Not all states offer this option
- Can’t be reversed once made
- Requires coordination between business and personal tax planning
Making the Most of These Changes
The enhanced SALT deduction is a big benefit if you live in a high-tax state, but that phase-out at $500,000 means income management becomes crucial for high earners. We might want to discuss strategies like timing capital gains and losses, retirement contributions, or business income recognition.
For business owners, the PTET election can provide substantial tax savings, but it requires proactive planning since elections are due early in the year and can’t be undone.
Remember, these enhanced limits are temporary – they revert to $10,000 in 2030. That means you should maximize the benefit while it’s available, potentially by accelerating state tax payments or property tax assessments.
