Discussions about the state and local tax deduction (SALT) are back.
One reason? Lawmakers are negotiating 2025 tax reform since Republicans control the White House, and both chambers of Congress. And President Trump, and several GOP lawmakers would like to see adjustments to the SALT cap.
- The SALT deduction allows taxpayers who itemize to deduct state and local taxes from their federal taxable income.
- The deduction was capped at $10,000 by the Tax Cuts and Jobs Act (TCJA), ushered in by Donald Trump in his first stint as president.
- Since then, the SALT cap has been a point of contention for many in high-tax states who argue the deduction limit disproportionately affects them.
But it’s important to note that the state and local tax deduction isn’t just an issue for people in so-called “blue states.”
Several Republican lawmakers have said they won’t support 2025 tax reform that doesn’t significantly lift the cap, while the U.S. House of Representatives has initially proposed a SALT write-off as high as $30,000, with some income limits.
But Politico reports that lawmakers may have reached a tentative deal to increase the cap to $40,000. (More on that below.)
Here’s what all this could mean for you and your tax bill.
SALT deduction explained
The SALT cap was originally introduced to offset tax cuts in the TCJA, signed into law during Trump's first term in 2017. However, the $10,000 cap has faced criticism for placing an undue burden on residents of states with higher taxes, which tend to lean Democratic.
However, the dynamics surrounding the SALT deduction cap are complex, particularly when it comes to how some Republican lawmakers see its impacts.
- The SALT cap is often seen as penalizing residents in "blue states" with high state and local taxes. Data show California, Illinois, New Jersey, New York, and Pennsylvania account for most SALT deduction claims. (However, Texas, a "red state," is included in that data set.)
- For example, before the SALT cap, the average SALT deduction in Connecticut was around $20,900 according to the National Association of Realtors. Just after the $10,000 limit was enacted, the average SALT deduction in CT dropped to about $9,700. So, some Connecticut taxpayers saw a nearly 58% deduction decrease.
- However, some Republicans representing those states have become vocal about the need to raise or eliminate the cap. The urgency is heightened because the SALT deduction limit is set to expire at the end of 2025, if Congress doesn't act.
The cost of a SALT cap repeal (more on that below) and questions surrounding who benefits most (Tax Policy Center says high-income earners) are also key issues to be addressed in 2025.
GOP stance on SALT cap: Will "No SALT, No Deal" hold?
Rep. Mike Lawler (R-N.Y.) emerged as a key figure in this debate late last year. During an appearance on Bloomberg’s "Balance of Power," Lawler stated he wouldn’t support any tax proposal that doesn’t include the removal of the SALT cap.
He has emphasized that his backing and support from other representatives from New York, New Jersey, and California are essential for passing tax legislation. Lawler remarked, "I’ve been very clear. I will not endorse a tax proposal that does not remove the cap on SALT."
It’s also worth noting that Rep. Tom Suozzi (D-N.Y.), also known as "Mr. SALT," has been a prominent advocate for the restoration of the SALT Deduction for some time.
His mantra, "No SALT, no deal," became a rallying cry among some lawmakers from high-tax states.
Suozzi has consistently said he would oppose any tax legislation that doesn't address the SALT cap, arguing that it represents "double taxation" and is a significant financial burden for Long Island and Queens residents.
What's happening with the SALT Cap?
Former President Donald Trump has also weighed in. As Kiplinger reported, Trump called for lifting the SALT cap during his 2024 presidential campaign events, stating an intention to "get SALT back."
At the time, those comments brought mixed reactions. Some viewed it as a necessary pivot for constituents in high-tax states, while others criticized him for previously supporting the very legislation that imposed the cap.
Since then, lawmakers and Trump affirmed that some adjustment to the SALT cap is a priority in what he hopes will be one big reconciliation bill addressing tax, border security, and more.
The House GOP’s draft legislation, released May 12, proposes raising the SALT deduction cap to $30,000 for married couples earning up to $400,000. For single filers, the cap would be $15,000, applying to those making up to $200,000.
- For incomes above those limits, the deduction would gradually phase down by 20% for every dollar over the threshold.
- But it wouldn’t drop below the current $10,000 cap for joint filers or $5,000 for singles.
- Note: These details could still change as the bill moves through Congress.
Also worth noting: A few weeks ago, Bloomberg reported that Rep. Jeff Van Drew (R-N.J.) thought House Republicans could approve a $30,000 SALT cap., saying, “$30,000 is fine for me,” adding, "That’s where I think it ends up, by the way."
However, some in the caucus have already expressed concern that $30,000 isn't high enough.
In a press statement, Lawler and several other House lawmakers criticized the proposal, calling the $30,000 cap “woefully inadequate,” adding, "We reject this offer."
Update: On May 20, House lawmakers reportedly reached a tentative deal to propose a higher $40,000 SALT cap.
According to Politico, the cap would be per household and income limited. Only those making below $500,000 a year could claim the deduction. Other aspects of the tentative agreement would involve 1% a year for ten year growth in the cap and the deduciton. (Details surrounding the deal are developing.)
Cost of repealing or modifying the SALT cap
What about the cost? Eliminating the SALT cap could cost an estimated $1.2 trillion over ten years, according to the Committee for a Responsible Budget. That price tag raises concerns among some fiscal conservatives about federal revenue and deficit reduction.
So, this underscores another key issue in the upcoming debate over tax reform: fiscal responsibility. The Congressional Budget Office (CBO) has estimated that just making the TCJA permanent (a big item on Trump’s tax wish list) could cost more $4 trillion over ten years.
Potential changes to the SALT deduction
As negotiations and positioning continue in Congress regarding potential new tax legislation, it remains to be seen whether the House version of the SALT cap will be part of any final legislation.
Several options to deal with the SALT deduction have floated around this year with varied projected budget impacts.
For instance, before news of the tentative $40,000 cap proposal broke, Lawler and other SALT caucus members had reportedly pushed for caps as high as $62,000 for individuals or double that for couples. Some have referenced proposals to raise the cap to $100,000 for individuals and $200,000 for married couples.
The debate continues as the House works to get a version of its bill through the Rules Committee and then the full House of Representatives.
Remember: Any changes to the SALT deduction could impact taxpayers nationwide, particularly those in states with higher tax burdens, so keep an eye on tax changes involving this and other key deductions.
This article has been updated to include activity in the U.S. House of Representatives.
