Starting in 2025, the One Big Beautiful Bill ushers in a major change for taxpayers by expanding the State and Local Tax (SALT) deduction. Under the updated rules, individuals can now deduct up to $40,000 in 2025, which is four times higher than the previous $10,000 cap that had been in place since 2018. This is a big relief for residents in high-tax states who have long been limited in how much they could deduct. With the cap rising to $40,000 in 2025, many households in high-tax states that previously took the standard deduction may now benefit from itemizing, especially when combined with mortgage interest and charitable contributions.
But the benefits don’t stop there. From 2026 through 2029, the SALT deduction limit will be indexed annually at 101% of the last year’s amount. That means in 2026, for example, the limit will increase to $40,400, continuing to rise slightly each year to keep pace with inflation.
However, there is a phaseout provision to make sure of fairness across income levels. The deduction begins to phase out by 30% of the excess of a taxpayer’s modified adjusted gross income (MAGI) above $500,000 in 2025. The MAGI threshold itself will also be indexed annually by 101% through 2029.
Importantly, even after the phaseout applies, the deduction can never fall below $10,000, preserving a baseline benefit for all eligible taxpayers.
With these adjustments, the One Big Beautiful Bill aims to balance tax relief and fiscal responsibility, offering meaningful savings for middle- and upper-middle-income earners while maintaining equity across income brackets.
