Trump raised the SALT deduction cap to $40,000: Here's what it means for taxpayers
The $40,000 cap on state and local tax deductions provides relief to families who face surging property taxes but adds to the national debt
President Donald Trump's "big beautiful bill" raised the state and local tax deduction, known as SALT, to $40,000 for 2025. The change comes less than a decade after a cap was placed on this tax break for the first time in its history.
Taxpayers who itemize tax breaks can claim the SALT deduction, which includes state and local income taxes and property taxes. Trump's 2017 legislation capped SALT at $10,000. Prior to 2018, the deduction was unlimited — but curbed by the alternative minimum tax for some wealthier households.
"This was in effect for over 100 years prior to the 2017 passage of the Tax Cuts and Jobs Act," said Rep. Mike Lawler, R-N.Y., who led the push on Capitol Hill for the higher cap.
More from Personal Finance:
New bill would eliminate taxes on Social Security benefits
Record numbers of retirement savers are now 401(k), IRA millionaires
Why coffee prices are so high — and where they’re headed next
Congress introduced an unlimited state and local tax deduction in 1913. Lawmakers' goal: cut down on what some consider double taxation.
But when Republicans needed ways to pay for other tax breaks in the 2017 bill, they homed in on capping the state and local deductions, arguing they primarily benefited wealthier Americans in high-cost-of-living areas.
Who benefits from a higher SALT cap
Households making $1 million or more would receive half of the benefit if the SALT cap were repealed, according to a 2021 report from the Tax Policy Center.
But data shows less wealthy families stand to save from the higher cap, too, especially those in high-cost-of-living areas outside major cities.
In 2022, the average SALT deduction was close to $10,000 in states such as Connecticut, New York, New Jersey, California and Massachusetts, according to a Bipartisan Policy Center analysis with the latest IRS data. Those high averages indicate "that a large portion of taxpayers claiming the deduction bumped up against the $10,000 cap," researchers wrote.
Meanwhile, the states and district with the highest share of SALT claimants were Washington, D.C., Maryland, California, Utah and Virginia, the analysis found.
Higher property taxes are also putting pressure on many homeowners. The national median annual property tax increased 23% between 2019 and 2023, according to the National Association of Realtors.
State and local taxes are crucial for funding public services. In 2022, New York state and local governments spent $15,368 per person. That year, the state levied $12,751 in tax per person, according to the Citizens Budget Committee of New York.
"That took care of roads, bridges, school districts," said Westchester County Executive Ken Jenkins. Westchester County in New York has some of the highest property tax bills in the country.
Raising the cap on deductions ultimately reduces the amount of revenue the federal government takes in.
This adds to the national deficit, which stands at $1.628 trillion in fiscal year 2025, according to the Treasury Department.
The higher SALT cap is expected to increase the national debt by over $142 billion over 10 years, according to the Joint Committee on Taxation. The Tax Foundation estimates that the heightened cap would cost about $320 billion compared to an extension of the existing cap.
Watch the video above to learn more about why Congress raised the SALT cap this summer.
CNBC personal finance reporter Kate Dore contributed reporting to this story.
This story originally appeared on: CNBC - Author:Emily Wilkins
