[UNITED STATES] Most Americans won’t see much benefit from one of the more contentious provisions in the newly passed "One Big Beautiful Bill." But for a select group of higher-income taxpayers, the legislation could deliver significant tax savings.
A key change highlighted by the Tax Foundation as “generous” involves the federal deduction for state and local taxes, or SALT. The new legislation, which is now headed to the Senate, raises the cap on SALT deductions to $40,000 for those who itemize—up from the current $10,000 limit set under the 2017 Tax Cuts and Jobs Act (TCJA). This includes deductions for state income, sales, and property taxes.
“There will definitely be beneficiaries from the higher SALT cap, though it won’t apply to everyone,” said David Haas, a certified financial planner at Cereus Financial Advisors.
The TCJA dramatically reduced the number of taxpayers who itemized by doubling the standard deduction and capping SALT deductions at $10,000. This latest legislation reverses that effect, at least for wealthier individuals living in high-tax areas.
The expanded $40,000 deduction phases out for individuals earning over $500,000, gradually returning to the original $10,000 cap. The income thresholds are set to rise 1% annually. Meanwhile, taxpayers in the top 37% tax bracket are limited to claiming the SALT deduction at a 32% rate—diminishing the value of the deduction compared to a full offset against taxable income.
According to Larry Pon of Pon & Associates, the change was largely political. “These increases were added to appease the SALT caucus—primarily representatives from California, New York, and New Jersey,” he said.
Even before the TCJA, many high earners saw limited benefit from SALT deductions due to the alternative minimum tax (AMT) and Pease limitation, Haas noted. “The new phaseouts aren’t all that different from what we saw before 2017,” he said.
Previously, there was no cap on SALT deductions, allowing itemizing taxpayers to fully deduct state and local tax payments from their federal income. Under the proposed law, that advantage is partially restored—though targeted to a specific segment of the population.
High earners are expected to benefit most, said David Rosenstrock of Wharton Wealth Planning. “Those earning over $200,000—especially in the top 20%—stand to gain the most from the increased cap,” he explained. “They’re more likely to itemize and often have SALT liabilities well above $10,000.”
Single filers could also benefit under the revised cap. “Remember, single taxpayers get a standard deduction that’s only half that of married couples,” Haas pointed out. “Higher-income single filers who aren’t over the phase-out limit and who face steep property taxes will likely see tax savings.”
The bill proposes a $16,000 standard deduction for single filers, which Pon said could encourage more taxpayers to itemize. “That’s a real shift,” he noted.
Geography remains a decisive factor. John Bell of Free State Financial Planning said residents of high-tax states—like California, New York, New Jersey, Illinois, and Maryland—stand to gain the most. “For most taxpayers, the change won’t make much difference, but for those in high-tax areas, it’s a game-changer,” he said. “Many people in those states pay far more than $10,000 in property taxes alone.”
Pon, based in California, said many of his clients pay over $40,000 annually in state and local taxes. Haas added that taxpayers with large medical deductions or high-interest mortgages also stand to benefit, particularly single filers.
Medical expenses can only be deducted if total itemized deductions exceed the standard deduction, and only the portion above 7.5% of adjusted gross income is deductible. Similarly, mortgage interest remains deductible on loans up to $750,000, with second homes qualifying under certain limits.
The increased SALT cap also changes the dynamics around charitable giving. With a lower barrier to itemizing, smaller donations may again yield tax benefits. Yesenia Realejo of Tobias Financial Advisors said many of her clients—those with high real estate and income taxes, mortgages, and a history of charitable giving—could see meaningful gains.
She noted that many clients use donor-advised funds (DAFs) to consolidate charitable donations and maximize deductions. Under the current SALT cap, these contributions often don’t provide a tax benefit unless they push total deductions past the standard threshold.
For example, a married couple with $20,000 in property taxes and $10,000 in mortgage interest would need to donate an additional $10,000 to begin benefiting from itemization under the current cap and a $30,000 standard deduction. But with a $40,000 SALT cap, the same couple would reach the deduction threshold without charitable giving—meaning any donations could now yield tax savings.
Realejo believes the proposed change could revive charitable contributions among higher earners. “For clients in the right situation, it could lead to significant tax savings,” she said.
Still, middle-income households are unlikely to benefit, according to Rosenstrock. “Most opt for the standard deduction, and their SALT liabilities usually don’t exceed the current cap,” he said. However, some middle-income earners in high-tax states with sizable property tax bills might see limited benefits—if they itemize.
How It Could Work in Practice
To demonstrate the potential impact, Roger Pine, CEO of Holistiplan, analyzed a hypothetical retired couple in New York, both age 65, with a $300,000 household income—including $42,000 from Social Security.
The couple's standard deduction under the new proposal would be $35,200. Without itemizing, they’d owe $51,146 in federal tax. If they itemize and claim the proposed $40,000 SALT deduction, their taxable income drops enough to lower their tax bill to $49,994—a savings of $1,152. “The savings aren’t dramatic with just the SALT deduction,” Pine noted. “But once you include other deductions, like charitable contributions, it starts to add up.”
For example, a $20,000 donation wouldn’t have been deductible previously, since the couple wouldn’t have exceeded the standard deduction. But under the proposed rules, that same donation would now lower their taxable income.
“The real value of the expanded SALT deduction comes from unlocking other deductions,” Pine said, “especially for those with multiple itemizable expenses.”
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