The U.S. House of Representatives recently passed a sweeping tax and spending bill that includes significant changes to the State and Local Tax (SALT) deduction. If you are a high-income professional or business owner living in a high-tax state, this provision may directly affect your 2025 tax strategy.
While the bill still awaits Senate approval, the proposed SALT reform is significant enough that proactive planning is warranted now. In this article, I will break down the details, the client-specific implications, and the strategic actions that may affect how much tax you pay going forward.
Since the Tax Cuts and Jobs Act of 2017, individuals have been limited to a $10,000 deduction for state and local income, property, and sales taxes. This cap has been especially painful for taxpayers in high-tax states who itemize their deductions.
Under the new House proposal:
This expanded deduction could restore tens of thousands of dollars in tax deductions for clients who itemize and pay substantial state income and property taxes.
The benefits of the increased SALT deduction cap are subject to income-based phaseouts, and these thresholds depend on your tax filing status.
For Married Filing Jointly (MFJ) taxpayers:
For Single Filers:
From 2026 through 2033, the deduction cap and the income thresholds would increase by 1% annually. This provides some inflation-based indexing, which may help preserve the deduction's value over time.
Key point: If your income hovers around the phaseout thresholds, your ability to benefit from the increased SALT cap may depend on how well you time income, deductions, and other planning decisions across tax years.
If you earn a large salary and live in a high-tax state such as California, New York, Illinois, or New Jersey, you have likely been limited by the $10,000 SALT cap since 2018. An increased cap could allow you to reclaim previously non-deductible expenses and reduce your federal tax liability.
Strategically timing property tax payments and understanding whether to itemize versus take the standard deduction will become more relevant in 2025 and beyond.
Many pass-through entity owners in high-tax states have relied on Pass-Through Entity Tax (PTET) elections as a workaround to the federal SALT cap. With a higher personal SALT deduction available, those workarounds may no longer provide as much value for some taxpayers.
However, the bill maintains limitations for Specified Service Trades or Businesses (SSTBs), which means some business owners may still need to rely on PTET strategies to maximize deductions.
Action item: Business owners should reevaluate their entity-level tax elections and model how much benefit PTETs will provide under the new structure.
For professionals with equity compensation, such as RSUs, stock options, and ESPPs, the new SALT deduction framework introduces both opportunity and risk. If your income spikes due to a large vesting or exercise event, you may find yourself phasing out of the benefit altogether.
Options to consider include spreading out exercises across tax years, deferring bonuses, or coordinating state tax payments to capture the maximum deduction in lower-income years.
Many taxpayers defaulted to the standard deduction after 2018. With the increased SALT cap, more high earners may find it beneficial to itemize again. This reopens the door to deducting mortgage interest, charitable contributions, and other expenses that had limited value under the standard deduction framework.
If you are near the income thresholds where the SALT cap phases out, you may benefit from proactive income management strategies such as:
Even a small reduction in income could restore part or all of the SALT deduction benefit.
For clients who will return to itemizing, charitable giving strategies become even more effective. Consider:
These strategies can be coordinated with SALT deduction timing for maximum impact.
Although the House has passed the bill, the Senate still needs to approve it, and changes may still occur. Nonetheless, the structure and intent of the SALT reform are clear: lawmakers are aiming to provide meaningful tax relief to upper-middle-income households in high-tax jurisdictions without offering the full benefit to ultra-high-income taxpayers.
Staying informed and planning ahead will be critical as we approach the 2025 tax year.
For high-income households, changes like this are more than just policy headlines. They can alter your federal tax picture by tens of thousands of dollars. The key is not to wait until your CPA tells you what happened. The real value is in modeling these scenarios ahead of time and making decisions today that impact your taxes tomorrow.
If you are already a VIP client, we will incorporate these proposed changes into our planning sessions and scenario models. If you are not yet working with us, now is a great time to explore how personalized planning can help you make the most of legislative changes like this.
Because real planning is not just about what happened last year. It is about knowing what is coming next, and being ready.