The House of Representatives just approved a tax bill that could raise the State and Local Tax (SALT) deduction cap for some Americans.
Wealth host Brad Smith breaks down who would benefit if the bill is passed and what it means for your 2025 tax return.
To watch more expert insights and analysis on the latest market action, check out more Wealth here.
The tax bill passed by the house has a major change for Americans. The salt deduction, that's the amount that you can deduct for state and local taxes on your federal return. That means it can reduce the amount of income subject to federal tax, potentially lowering your overall tax bill. It can be used or at least it used to be that there was no salt cap, but that changed when the 2017 tax cuts and jobs act became law. And that legislation implemented a $10,000 cap on deductions to help pay for the tax cuts, angering lawmakers from high tax states. Under the new legislation passed by the house, one, the senate still needs to sign off on the salt cap, essentially would increase to $40,000 from $10,000, but only for households making under $500,000. Critics say that this benefits wealthier households and will add further to the national debt, but supporters say it brings back a level of fairness, particularly in high tax states like New York, New Jersey and California. It's also important to note that you must itemize deductions in order to get the salt benefits. So for some, it may not be worth it. Let's look at some examples. Take, for instance, a single filer in California who makes $150,000 and pays $15,000 in state and local taxes. Under current law, their salt deduction would be $10,000. Compare that to the 2025 standard deduction of $15,000 for single filers. This person, they're probably going to take that standard deduction over the salt deduction. If this $40,000 cap becomes law, they could deduct all $15,000 in state and local taxes, which equals the standard deduction, meaning they get no additional savings benefit. Now, let's take a married couple in New York who make $400,000 and pay $40,000 in state and local taxes. Well, under current law, they can only deduct $10,000 in salt, so they'd take the standard deduction of $30,000. With the new $40,000 salt cap, they could deduct all $40,000 in state and local taxes. This gives them an additional $10,000 in deductions compared to the standard deduction, saving them about $3,200 in federal taxes. So this example also highlights the so-called marriage penalty. The $40,000 deduction cap is the same for both individual filers and married couples filing jointly.
