High-income residents of Democratic-leaning states are on track for substantial refunds early next year, aided by a temporary expansion of the state and local tax (SALT) deduction.
President Donald Trump's "big, beautiful bill" raised the SALT cap to $40,000 from $10,000 starting with tax year 2025, though, as noted in a report by The Wall Street Journal, the benefit depends on income, tax burden and whether itemizing beats the standard deduction.
Roughly 11% of households will benefit in 2025, with average savings near $2,600, according to data from the Tax Policy Center. The gains are expected to cluster in high-tax, higher-income blue states after Republicans from New York and New Jersey pressed for the change in a narrowly divided House.
The new $40,000 cap applies to property taxes plus state income (or sales) taxes, but it phases down once adjusted gross income (AGI) exceeds $500,000 and reverts to the old $10,000 cap at $600,000 and above, under the law's design. The cap and the $500,000 threshold are indexed by 1% annually through 2029. Absent action by Congress, the cap falls back to $10,000 in 2030.
What Do Taxpayers With Incomes Under $500,000 Do Now?
Taxpayers below $500,000 AGI can still claim the full $40,000 SALT deduction, but only if they itemize.
Experts at WSJ suggest "bunching" deductions into 2025, which involves pre-paying January 2026 estimated state taxes in December and accelerating charitable gifts to clear the itemizing hurdle. Bear in mind that the 2025 standard deduction is $15,750 for single filers and $31,500 for joint filers. With a larger cap, more filers will cross that threshold and see refunds rise.
How Do Taxpayers With $500,000-600,000 AGI Do Now?
Above $500,000 AGI, the maximum SALT deduction shrinks by about 30 cents per $1 of added income, making marginal tax rates steep. As per WSJ’s Richard Rubin and Ashlea Ebeling, strategies include deferring income, maxing pretax retirement and HSA contributions, and, where sensible, shifting cash from taxable funds to tax-exempt municipals to trim AGI. Business owners may also time invoicing late in the year. For some retirees, qualified charitable distributions from IRAs can reduce AGI while satisfying required distributions.
Workarounds For Taxpayers With AGI Of Over $600,000
Once AGI hits $600,000, the cap effectively drops back to $10,000. According to insights from JP Morgan Private Bank, owners of closely held pass-through entities can still utilize state "PTET" elections, allowing the entity, rather than the individual, to pay and deduct state income taxes, often bypassing the personal cap. Some high earners are exploring non-grantor trusts, which are separate taxpayers that may claim their own SALT cap — though costs, complexity and IRS scrutiny mean expert advice is essential.
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