The SALT Torpedo: Why High Earners Could Owe 45% on $100K of Income

Let’s talk about a little tax landmine buried in Trump’s new 2025 tax bill—the so-called “SALT torpedo.”

It sounds harmless, maybe even tasty. It’s not.

If you earn between $500,000 and $600,000 next year, there’s a hidden phaseout baked into the bill that could spike your effective tax rate north of 45%. And most people—high earners included—have no idea it’s coming.

So let’s unpack what’s really going on, who’s at risk, and how thoughtful planning can help you dodge the blast radius.

Let’s start with the basics.

SALT stands for State and Local Taxes, which includes:

• State income taxes
• Property taxes
• Local sales taxes (in some cases)

Under the 2017 Tax Cuts and Jobs Act, the SALT deduction was capped at $10,000. That limit hit high-income earners—especially in high-tax states like California, New York, and New Jersey—like a freight train.

Trump’s new 2025 proposal, dubbed the “Big Beautiful Tax Bill,” lifts the SALT cap to $40,000 starting in 2025. Sounds generous, right?

Here’s the catch: the benefit phases out completely between $500,000 and $600,000 of income.

And it’s this phaseout that creates a bizarre, punishing tax cliff—the SALT torpedo.

The SALT torpedo is a sneaky little formula tucked into the bill.

Here’s how it works:

• If your modified adjusted gross income (MAGI) is under $500,000, you get the full $40,000 deduction.
• If your MAGI is $600,000 or more, you’re back to the old $10,000 deduction.
• If you’re in between, the deduction disappears proportionally—$1 of deduction is lost for every ~$3.33 in income above $500,000.

That’s a 30% phase-out rate on your income between $500K and $600K.

But here’s the kicker: you’re not just getting taxed on the income itself—you’re also losing deductions at the same time. That double whammy spikes your effective marginal tax rate to as much as 45.5%.

Let’s illustrate this with numbers.

Scenario 1:

• Income: $500,000
• SALT Deduction: $40,000
• Other Itemized Deductions: $35,000

Total Itemized Deductions: $75,000

Taxable Income: $425,000

Scenario 2:

• Income: $600,000
• SALT Deduction: $10,000 (entirely phased out)
• Other Itemized Deductions: $35,000

Total Itemized Deductions: $45,000

Taxable Income: $555,000

That’s a $130,000 increase in taxable income from earning $100,000 more, because you lost $30,000 in deductions on top of the added income.

Assuming you’re in the 35% bracket, that’s $45,500 in extra tax on just $100,000 of additional income.

That’s an effective tax rate of 45.5%. Boom. SALT torpedo.

If your income is hovering near that $500K–$600K zone, this is more than just an academic problem. It’s a real planning hazard with real money at stake.

We’re talking to:

• Tech execs with equity comp
• Physicians and legal partners
• Real estate investors with big 2025 exits
• Creators and entrepreneurs coming off a strong year
• Anyone receiving a large RSU vest, K-1 income bump, or deferred comp payout

You might think an extra $50K or $100K of income is a win. But in 2025, it could hand you a tax bill that nukes most of the benefit.

Let’s break down some common income events that could push you into the torpedo zone:

1. Roth Conversions: Converting pre-tax retirement funds into Roth can spike your MAGI. In normal years, that’s a strategic move. In 2025, it could be a backfire.
   
   
2. Equity Compensation: RSU vests, ISO exercises, and NQSO exercises all increase ordinary income. If you’re not modeling this out with a tax pro, you’re flying blind.
   
   
3. Capital Gains: Selling stock, crypto, or real estate? Even long-term capital gains can push your MAGI over the line.
   
   
4. Bonuses & Deferred Comp: Big corporate bonuses or deferred comp payouts count as ordinary income. Timing matters more than ever.
   
   
5. Rental Income or Business K-1s: Flow-through income from S Corps, LLCs, or real estate partnerships could push you over $500K without warning.

Fortunately, with the right planning, you can steer clear of this mess—or at least soften the blow.

Here are some moves to consider if your 2025 income might flirt with the danger zone:

1. Time Income Carefully: If you can defer a bonus, delay a stock sale, or stagger RSU vesting, it may be worth it. Even pushing income into 2026 (before rates revert) could reduce your effective tax burden.
   
   
2. Harvest Capital Losses: Offset gains with losses in your portfolio. This reduces MAGI and helps you stay under the threshold.
   
   
3. Charitable Giving: Use donor-advised funds (DAFs) or charitable remainder trusts (CRTs) to offset income and keep your deductions intact.
   
   
4. Reduce MAGI with Pre-Tax Contributions: Maximize 401(k), HSA, and defined benefit plans. Every dollar of pre-tax savings helps you stay under the torpedo line.
   
   
5. Spread Roth Conversions Over Multiple Years: Instead of doing a $200K conversion in one shot, consider breaking it into smaller annual conversions to avoid pushing MAGI too high in 2025.

Most advisors don’t run MAGI projections or model effective marginal tax rates. But that’s where the danger lies.

Here at VIP Wealth Advisors, we model your real-world tax exposure, not just your headline rate. Because the SALT torpedo doesn’t show up in your tax bracket chart, it shows up in your bank account.

The SALT torpedo is a perfect example of how tax laws can appear to be a gift to high earners but conceal brutal trade-offs underneath.

Yes, the $40,000 SALT deduction sounds generous. But for high earners between $500K and $600K, it’s a trap wrapped in a bow.

This is not the time for guesswork or reactive planning. If your 2025 income is anywhere near that danger zone, you need to model your tax exposure now, not next April.

Because once you trigger the SALT torpedo, the damage is done.