The State and Local Tax (SALT) Deduction Explained – What You Need to Know for 2025–2029

[Last Updated on 3 weeks ago]

The State and Local Tax (SALT) deduction lets taxpayers who itemize on Schedule A (Form 1040) reduce their federal taxable income by certain taxes they’ve already paid to their state or local government.

In plain terms: You can deduct some of the state and local taxes you pay each year so you don’t get taxed twice on the same money.

New SALT Deduction Rules and Caps Under the 2025–2029 Tax Law

A recent law called the One Big Beautiful Bill Act (OBBBA) temporarily raised the deduction limit.

• The cap increases to $40,000 for joint filers and $20,000 for separate filers.
• The cap begins to phase down when income (MAGI) exceeds $500,000 for married filing jointly.
• The cap slightly increases 1% each year through 2029.
• In 2030, the cap drops back to $10,000, unless new legislation changes it.

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What Does SALT Tax Mean and How Do SALT Deductions Work?

The SALT deduction allows taxpayers to reduce federal taxable income by deducting state and local taxes already paid. It Includes:

1. State and local income taxes
2. Sales taxes (if your state doesn’t have income tax, you can choose this instead)
3. Property taxes on real estate

To qualify, you must itemize deductions on Schedule A instead of taking the standard deduction.

Example:
If you paid $35,000 in property and state income taxes and you’re under the SALT cap, you can deduct that amount from your taxable income. That could save you about $8,000 in federal taxes if you’re in the 24% bracket.

Which Taxes and Fees Don’t Qualify for SALT Deduction?

The IRS clearly excludes several payments from the SALT deduction.

You cannot deduct:

• Federal income taxes
• Social Security and Medicare taxes
• Estate or inheritance taxes
• HOA dues or community fees
• Transfer or stamp taxes when buying/selling property
• Utility service fees (water, trash, sewer)

✅ Pro tip for CPAs: Ask CPA Pilot to draft a “client-ready explainer email” that breaks down which state taxes are deductible vs. which aren’t — ready to send from your inbox.

2025–2029 SALT Deduction Cap: Income Thresholds and Limits Explained

The SALT deduction cap limits how much you can deduct from your federal return.

Here’s how it looks now:

How the SALT Deduction Phase-Down Works:
When income (MAGI) exceeds $500,000 for joint filers, the deduction begins to shrink. At higher income levels ($700k+), the SALT deduction cap can drop back down to $10,000.

Want to include this in a client memo?
Ask CPA Pilot: “Write a one-paragraph client summary explaining the 2025 SALT deduction cap and who benefits most.”

How the PTET Election Bypasses the SALT Cap for Business Owners?

To help small-business owners, many states introduced a Pass-Through Entity Tax (PTET) election.

This lets S corporations, partnerships, and some LLCs pay state taxes at the business level instead of the owner’s personal return.

Those taxes then become fully deductible business expenses — which means they’re not limited by the SALT cap.

Why PTET Still Works?

• Avoids the income (MAGI) phase-down completely
• Helps even if the owner takes the standard deduction
• Lowers adjusted gross income, which can reduce other taxes like the Alternative Minimum Tax (AMT) and Net Investment Income Tax (NIIT)

Example:
A California S-corp owner earning $650,000 pays $35,000 in PTET → the entire $35,000 is deductible. Without PTET, they’d only get about $22,000 under the SALT cap.

SALT Deduction Cap Timeline: Is the $10K Limit Coming Back?

The higher cap applies from 2025 through 2029, then returns to $10,000 in 2030 unless Congress extends it. (Confirmed by Loeb & Loeb LLP and AnchIn Advisors.)

After that, the limit returns to $10,000 ($5,000 MFS) unless Congress changes the law.

Bottom line: You have a five-year window to maximize your SALT deductions.

SALT Deduction in Action: Real-World Scenarios

CPA SALT Deduction Checklist: Documentation and PTET Election Steps

For Itemizers

•  Keep receipts for property, state, or sales taxes paid
•  Only deduct what you actually paid this year 
•  Adjust for state refunds (Form 1099-G)
•  No prepaying future-year tax bills

For PTET Elections

1. Confirm entity qualifies (S-corp, partnership, multi-member LLC)
2. File election before state deadline
3. Pay through entity bank account
4. Allocate credits to owners
5. Deduct on entity’s federal return

Automate documentation:
CPA Pilot can draft internal memos, client letters, or email templates summarizing these steps for your firm’s workflow.

Top SALT Deduction Planning Strategies for 2025–2029

1. Bundle Charitable Gifts

Combine several years of donations into one to push past the standard deduction and get the SALT benefit.

2. Time Payments

Pay property or PTET taxes by Dec 31, 2029 to take advantage of the temporary higher cap.

3. Coordinate SALT + QBI

PTET lowers Qualified Business Income (QBI) but reduces total tax for many owners — run both scenarios to be sure.

4. Reduce AMT and NIIT

Because PTET lowers AGI, it can also reduce Alternative Minimum Tax and Net Investment Income Tax exposure.

5. Plan Residency Moves

If moving from a high-tax state to a low-tax state, coordinate timing to maximize SALT benefits before leaving.

Final Thoughts: How to Maximize SALT Deductions Before 2030?

Between 2025 and 2029, CPAs and taxpayers get a rare opportunity to capture more value from the SALT deduction — but it requires smart planning.

By timing payments carefully, leveraging PTET elections, and using tools that model MAGI phase-downs, you can save clients significant money before the cap drops again in 2030.

Use CPA Pilot to draft your firm’s “SALT Deduction 2025–2029” — and save hours on research, writing, and client communication.

SALT Deduction FAQs

How does the SALT deduction affect the Alternative Minimum Tax (AMT)?

Taxpayers subject to the Alternative Minimum Tax can’t deduct state and local taxes, but PTET payments reduce business income before AMT applies — helping lower exposure indirectly.

Can the SALT deduction impact Qualified Business Income (QBI) under Section 199A?

PTET payments reduce QBI because they lower entity income, but overall tax efficiency improves since those state taxes become fully deductible at the entity level.

How do state tax refunds interact with the SALT deduction?

If you deducted state taxes and then received a refund, that refund becomes taxable income next year under the tax benefit rule, reducing your SALT deduction advantage.

Do high-income earners still benefit under the SALT deduction phase-down?

Above $500k MAGI, the deduction phases down gradually — some benefit remains until the minimum $10k cap applies, especially for joint filers with property-heavy portfolios.

What is the difference between the SALT deduction and the standard deduction?

The SALT deduction applies to state and local taxes for itemizers, while the standard deduction is a flat amount based on filing status. You can’t claim both.

What is the current SALT deduction limitation?

From 2025–2029, the SALT deduction limitation increases to $40,000 (joint) and $20,000 (separate), with a phase-down starting at $500,000 MAGI.

How can CPA Pilot simplify SALT deduction planning?

AI Tax Assistant like CPA Pilot uses AI to summarize tax law changes, draft client memos, and explain SALT and PTET implications — helping firms save time and deliver expert guidance faster