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

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.

What’s New for the SALT Deduction in 2025–2029

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.

Want to explain these new rules to clients fast? Use CPA Pilot to draft a ready-to-send client summary on the 2025 SALT changes — written in plain English.

What is the SALT Deduction?

The SALT deduction reduces how much federal tax you pay by letting you deduct these types of taxes you already paid locally:

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 your home or land

You can’t claim this deduction if you take the standard deduction — only if you itemize your expenses on Schedule A.

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.

SALT Deduction Cap 2025–2029 Explained

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

Here’s how it looks now:

Tax Year	Joint Filers	Separate Filers	Phase-Down Begins	Notes
2024	$10,000	$5,000	None	Old TCJA limit
2025	$40,000	$20,000	$500,000 MAGI	OBBBA increase
2026	$40,400	$20,200	$505,000	+1% index
2027–2029	+1% yearly	+1% yearly	Indexed	High-cap window
2030	$10,000	$5,000	N/A	Reverts to TCJA cap

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.”

What is the SALT Cap Workaround (PTET)?

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.

Need a clear client explanation? Ask CPA Pilot: “Create a client-facing summary comparing SALT vs PTET for small business owners.”

Did the SALT Deduction Cap Expire?

No — but it’s temporary.

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 Examples: Real-World Scenarios

Example	State	Income	Strategy	Federal Savings
Homeowner	New York	$420 k	Itemize up to $40 k SALT	$9,600
S-corp owner	California	$650 k	Use PTET workaround	$11,200
Business owner	Texas	$310 k	Elect sales tax instead of income tax	$5,500
Married couple MFS	New Jersey	$500 k combined	Split returns to double deduction	$40,000 total

CPA Compliance Checklist for SALT Deduction

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.

Smart Planning Tips for SALT Deduction (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.

Conclusion: Make SALT Planning Simple

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.

How can AI tax Assistant like CPA Pilot simplify SALT deduction planning?

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