Disclaimer: Do not make tax planning or preparation decisions based on just this article. This article is for informational purposes only. The tax code and any guidance the IRS provides should be relied on for tax preparation and planning, as well as a competent tax professional who you have engaged for services. The tax code can and will change and as of July 9, 2025 the IRS has not yet published guidance or procedures for this deduction. This article does not cover all the details of this topic

State and local taxes can be deducted on the federal tax return filing as part of itemizing on a schedule A. Most taxpayers are not in the position where itemizing makes sense. It is often better to just take the standard deduction. But if you are able to itemize this is may be good news for your tax situation.

State and local tax deduction limitation under the Tax Cuts and Jobs Act (TCJA) since 2018 was $10,000. State and local income taxes (or sales taxes), real estate property taxes, and personal property taxes were limited to no more than a total of $10,000 ($5000 if Married Filings Separately) for itemized deductions on schedule A for the 1040. This limit was scheduled to disappear in 2026. 

Under OB3 the limit continues indefinitely. But the best news is it has increased for a few years. 

For tax year 2025 the limit is increased to $40,000. And it increases for a few years, at a rate of 1% more than the previous year (sometimes you really have to wonder how Congress comes up with these things). This continues until it drops back down to $10,000. Married Filing Separately is half of the values below:

 

  • 2025 – $40,000
  • 2026 – $40,400
  • 2027 – $40,804
  • 2028 – $41,212
  • 2029 – $41,624
  • 2030 and forward – $10,000

Sounds great but there is a limitation based on a Modified Adjusted Gross Income (MAGI). The SALT deduction is reduced by 30% of the amount that modified adjusted gross income (MAGI) exceeds the following amounts for all filing statuses (except Married Filing Separate, which is 50% of the below amounts). The SALT limitation will NOT go lower than $10,000 for each year due to this phaseout:

  • 2025 – $500,000
  • 2026 – $505,000
  • 2027 – $510,050
  • 2028 – $515,151
  • 2029 – $520,302
  • 2030 and forward –the limitation no longer applies

For 2025 if you MAGI is $600,000 or higher then you are back down to the $10,000 SALT limitation.

Who does this help?

  1. If you were itemizing, already and you were maxing the SALT deduction at $10,000, then you may have a higher deduction, subject to the new limitations. If you are at the 22% marginal rate and you are able to deduct $10,000 more, then you’ll have $2200 of additional tax savings on the federal return. 
  2. If you weren’t itemizing because the SALT deduction limit was preventing you from getting your itemized deductions greater than your standard deduction, this might permit you to benefit from itemizing.

If you think that this tax law change can benefit you, then you may want to do some tax planning. Perhaps you can adjust your tax withholding or estimated tax payments. There may be things you can do to use an increased deduction to offset irregular income or income you can choose when it is taxable. Speak to your tax professional before taking actions which might impact your tax situation.