House passes SALT deduction changes

[UNITED STATES] House lawmakers on Thursday morning voted to advance changes to the federal deduction for state and local taxes—commonly referred to as SALT—as part of former President Donald Trump’s 2017 tax reform package.

Currently, the Tax Cuts and Jobs Act (TCJA) imposes a $10,000 cap on SALT deductions. Increasing that limit has been a key objective for legislators representing high-tax states such as New York, New Jersey, and California. Taxpayers must itemize their deductions to qualify for the SALT write-off.

The SALT deduction has long been a flashpoint in tax policy debates. Supporters argue it offers relief to taxpayers facing high property and income taxes by easing their federal tax burden. Critics, however, claim the deduction skews in favor of wealthier Americans, who are more likely to itemize and benefit from it.

Under the House’s revised proposal, the SALT cap would increase to $40,000—up from a previously suggested $30,000—and would begin to phase out at incomes above $500,000. The updated language, released by the House Rules Committee, indicates the changes would take effect in 2025.

From 2026 through 2033, both the cap and the income threshold for phaseout would rise by 1% annually, according to the proposed text. This adjustment reflects a compromise designed to address concerns from high-tax states while balancing the potential fiscal impact on federal revenue. The raised cap is expected to offer relief to many in those states, although the phaseout aims to limit the benefit for the highest earners.

The updated proposal also includes a reduction in itemized deductions for certain taxpayers in the 37% tax bracket, which could diminish the benefit of the higher SALT cap for those individuals. For the 2025 tax year, the 37% bracket applies to single filers with taxable income over $626,350, and married couples filing jointly earning more than $751,600.

Tax analysts and economists are monitoring the proposed changes closely, with an eye on how they might affect individual taxpayers and the broader economy. While the increased SALT cap could ease the tax burden for some middle-income households in high-cost areas, reductions in deductions for top earners may counterbalance those benefits. The ultimate impact on federal revenues and economic growth remains uncertain.

The proposal is expected to face hurdles in the Senate, where opposition to raising the SALT cap has been more pronounced. Prior to the TCJA, the SALT deduction was unlimited, though the alternative minimum tax often reduced its value for high-income earners.

Understanding the SALT Deduction

When filing federal taxes, filers must choose between the standard deduction and itemizing expenses such as SALT (capped at $10,000), certain medical costs, charitable contributions, and other eligible items.

Following the 2018 implementation of the TCJA, the standard deduction was doubled and is now indexed for inflation. For 2025, it is projected to reach $15,000 for single filers and $30,000 for married couples filing jointly—amounts that could rise further under the House tax proposal.

According to recent IRS data, about 90% of taxpayers currently opt for the standard deduction and thus do not benefit from itemized deductions like SALT. “Any changes to lift the cap would primarily benefit higher earners,” wrote Garrett Watson, director of policy analysis at the Tax Foundation, in a report released Tuesday. He noted that with a phaseout beginning at $400,000, the top 20% of earners “would be the only group to meaningfully benefit.”

Still, members of the SALT Caucus argue the deduction cap disproportionately burdens middle-class households in their districts. Rep. Josh Gottheimer, D-N.J., co-chair of the SALT Caucus, told on Tuesday that fully repealing the $10,000 limit would represent “a huge tax cut and benefit for middle-class families around the country.”