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The SALT Deduction: A Quick Refresher

The State and Local Tax (SALT) deduction allows taxpayers to deduct certain taxes paid to state and local governments – including income, property, and sales taxes – on their federal tax returns. However, the Tax Cuts and Jobs Act (TCJA) of 2017 capped the SALT deduction at $10,000, disproportionately affecting taxpayers in high-tax states like California, New York, and New Jersey.

What’s New in 2025?

In 2025, the SALT deduction rules are once again in the spotlight, with proposed changes aimed at either modifying or eliminating the current cap. Here are the key updates:

1. Proposed Increase or Elimination of the $10,000 Cap

Several proposals in Congress are pushing to raise the cap significantly or repeal it entirely, especially for joint filers. Some versions of the bill include:

• Increasing the cap to $20,000 or $30,000 for married couples.
• Eliminating the cap for households under a specific income threshold (e.g., $400,000).
• Phased deductions based on income levels.

Note: As of August 2025, no bill has passed into law, but significant changes could be enacted before the 2025 tax filing season.

2. Impact on Pass-Through Entities

Many states introduced SALT cap workaround programs for pass-through entities (PTEs) like LLCs and S corporations. These programs allow businesses to pay state taxes at the entity level, bypassing the individual deduction cap. The IRS has blessed this workaround, and more states are adopting or expanding these programs in 2025.

3. Increased IRS Scrutiny

The IRS has ramped up audits related to SALT cap workarounds and improper deductions. Businesses and individuals should ensure compliance with both federal and state rules.

Who Is Most Affected by These Changes?

The SALT deduction changes primarily affect:

• High-income earners in states with high income and property taxes
• Married couples filing jointly
• Business owners in pass-through entities
• Real estate investors and homeowners

If you fall into one of these categories, it’s especially important to evaluate your tax planning strategy before the end of the year.

Strategic Tax Planning Tips for 2025

Here’s how you can prepare for potential SALT rule changes:

✅ Review your 2024 state and local tax payments with your accountant
✅ Consider entity-level tax elections if you own a business in a qualifying state
✅ Time your property tax payments to maximize deduction value if the cap changes
✅ Stay informed about federal legislation updates and adjust accordingly
✅ Run projection scenarios with a CPA or tax advisor based on different deduction caps

Final Thoughts: SALT Deduction Changes Require Proactive Planning

Whether the SALT cap is lifted, expanded, or remains unchanged, early planning can help you minimize your tax liability and avoid surprises at filing time. The SALT deduction is a key piece of the tax puzzle and one that may shift significantly in the coming months.

Need Help Navigating the New SALT Rules?

At AEM Accounting, LLC, we specialize in helping individuals and businesses optimize their tax strategies in a constantly changing landscape. Contact us today to schedule a consultation or subscribe to our newsletter for real-time tax updates.