The state and local tax deduction, commonly referred to as SALT, has been expanded for the first time since it was capped in 2017. Former President Donald Trump announced that the cap would increase from $10,000 to $40,000 for 2025, reopening one of the most debated issues in federal tax policy.
The move comes less than a decade after Congress first introduced a limit on the deduction, which had been unlimited since its creation in 1913. The revision is expected to provide substantial tax relief for residents in high-tax states, but it will also add billions to the federal deficit.
IRS data, property tax reports, and budget analyses all show that the raised cap could reshape the tax landscape for millions of households, while also straining the federal government’s revenue stream.
+ Remember: The SALT deduction cap has increased to $40,000 so it phases out at higher income levels. This affects itemizers in high-tax states especially. pic.twitter.com/s2oSreyABn
— #WinnieSun ☀️ (@winniesun) September 11, 2025
Table of Contents
History of the SALT Deduction
The SALT deduction was introduced in 1913 to prevent double taxation. It allowed taxpayers to deduct state and local income, sales, and property taxes from their federal tax bills. For over a century, the deduction had no cap, though wealthier households were partially restricted under the alternative minimum tax (AMT).
The 2017 Tax Cuts and Jobs Act marked a turning point. To help fund other tax reductions, lawmakers capped the SALT deduction at $10,000 per household, a change that primarily affected taxpayers in states with higher property values and higher income tax rates.
The new $40,000 cap for 2025 does not restore the unlimited deduction but significantly expands the tax relief compared to the 2017 rules.
Who Benefits Most from the Higher Cap
Tax experts note that the largest beneficiaries are high-income households. A 2021 Tax Policy Center report estimated that half of the benefits from repealing the SALT cap would go to families earning over $1 million annually. However, the raised cap also supports middle- and upper-middle-income taxpayers in high-cost states.
IRS data from 2022 showed that the average SALT deduction in states such as New York, New Jersey, Connecticut, California, and Massachusetts was close to $10,000. This indicates that many taxpayers were hitting the old limit. The higher cap means more of their state and local taxes can now be deducted.
Average SALT Deductions in High-Tax States (2022)
| State | Average Deduction | Likelihood of Hitting Cap |
|---|---|---|
| New York | $10,000+ | Very High |
| New Jersey | $9,800+ | High |
| Connecticut | $9,700+ | High |
| California | $9,900+ | High |
| Massachusetts | $9,600+ | High |
These figures explain why lawmakers from high-tax states pushed for the change, arguing that the 2017 cap unfairly penalized their residents.
Property Taxes Add to the Pressure
Property taxes have been rising nationwide. According to the National Association of Realtors, the median annual property tax bill grew by 23% between 2019 and 2023. Homeowners in counties like Westchester, New York, now face some of the highest property tax bills in the country.
State and local governments rely heavily on these revenues to fund essential services. In 2022, New York state and local governments spent $15,368 per person and collected $12,751 per person in taxes, according to the Citizens Budget Commission. These costs underline why the SALT deduction has become critical for taxpayers in such regions.
Federal Fiscal Impact
The expansion of the deduction does not come without cost. By allowing taxpayers to deduct more, the federal government collects less revenue.
The Joint Committee on Taxation projects that raising the SALT cap will add $142 billion to the national debt over 10 years. The Tax Foundation places the cost even higher, at $320 billion, if the $40,000 cap continues beyond 2025 instead of reverting to $10,000.
Meanwhile, the federal deficit already stands at $1.628 trillion for fiscal year 2025, according to Treasury data. Critics argue that expanding SALT will worsen long-term budgetary challenges.
Federal Revenue Impact Projections
| Source | 10-Year Estimated Cost |
|---|---|
| Joint Committee on Taxation | $142 billion |
| Tax Foundation | $320 billion |
These projections highlight the trade-off: tax relief for households comes at the price of higher federal debt.
The decision to raise the SALT deduction cap marks a significant shift in U.S. tax policy. It offers much-needed relief to taxpayers in states with high property and income taxes while also delivering larger benefits to high-income households. However, the fiscal trade-off is substantial, with federal revenue losses projected in the hundreds of billions.
For taxpayers, the higher cap represents an opportunity to save more on their federal tax returns. For policymakers, it raises critical questions about striking a balance between tax fairness and fiscal responsibility.
FAQs
What is the SALT deduction?
The SALT deduction allows taxpayers who itemize their returns to deduct state and local taxes, including income and property taxes, from their federal taxable income.
Why was the SALT deduction capped in 2017?
The cap was introduced as part of the Tax Cuts and Jobs Act to help offset the cost of other tax cuts. Lawmakers argued it mostly benefited wealthy taxpayers in high-tax states.
Who benefits most from the new $40,000 cap?
High-income households gain the most in dollar terms, but middle-income families in states with high property taxes also benefit significantly from the higher deduction limit.
How does the change affect the federal budget?
The expansion reduces federal revenue. Estimates suggest it could add between $142 billion and $320 billion to the national debt over 10 years.
Will the $40,000 cap be permanent?
The change is effective for 2025. Whether it becomes permanent will depend on future tax legislation and budget negotiations in Congress.