The Big Beautiful SALT Deduction: How the increased SALT cap will impact business owners
On July 4, 2025, President Donald Trump signed the reconciliation bill, known as the “Big Beautiful Bill” (BBB), which covered many of his campaign promises. This reconciliation, centering upon extensions to the Tax Cuts and Jobs Act (TCJA), is likely the last major bill the Republicans will pass this session. [1] Among the many compromises required by congressional Republicans to pass the BBB was an increase to the cap on the State and Local Tax (SALT) deduction. The way the SALT cap increase was balanced against other Republican priorities and its impact on US taxpayers deserves a thorough review.
The Passage of the BBB and increase to the SALT cap:
The BBB primarily extended the first-term Trump tax cuts found within the TCJA. However, the BBB also included many of Trump’s tax policy priorities, such as no tax on tips and overtime, and codified many cuts to the federal government. The process was complicated because the Republicans, who passed the bill upon party lines, only have an 8-seat majority in the House (220-212) and 6 in the Senate (53-47). [2] Because of these small margins, individual house members and senators had significant influence over this process.
As a result, many Republican House members made their priorities mandatory under this bill. The SALT cap deduction was one such issue that was seen as essential to several blue-state Republicans, providing relief to one of their constituencies’ longstanding problems. Initial proposals were to increase the SALT cap deductions to $60,000 before settling on a $40,000 limitation, with dollar-for-dollar reductions for taxpayers earning more than $250,000 as single taxpayers or $500,000 for married filing jointly.[3] The Senate eventually passed a version of the BBB with the SALT cap at $40,000 that would expire in 2029 as opposed to 2033.[4] Unless further changes are made, in 2029, the SALT cap will revert back to $10,000.
The consequences of SALT deduction increase in the BBB:
The SALT deduction prior to this bill was $10,000 and allowed deductions for state and local taxes such as property and income taxes but not stamp taxes or estate taxes.[5] The SALT deduction is only useful for taxpayers that itemize their deductions. Accordingly, to be beneficial for taxpayers, SALT deductions must be combined with other itemized deductions to exceed the standard deduction of $14,600 for single taxpayers or $29,200 for married filing jointly.[6] The increase of the SALT cap will surely result in more taxpayers itemize their deductions instead.
However, as noted above, high-income taxpayers also will not be able to benefit from the increased SALT cap since the deduction is phased out for those taxpayers. Additionally, although earlier drafts would have ended the ability to avoid the SALT cap through the popular workaround laws, allowing pass-through entities to elect to pay state taxes at the entity level, no such prohibition was included in the final BBB. Accordingly, the SALT cap workaround laws sanctioned under IRS Notice 2020-75 will continue to be popular for avoiding the cap on deductions.
Considering the volatile political climate and changing tax laws, it is advisable for businesses and individual taxpayers to have trusted tax professionals upon which they can rely. Taxpayers in need of assistance can contact the State and Local Taxation team at Buckingham, Doolittle, and Burroughs, LLC.
[1] See The Reconciliation Process: Frequently Asked Questions, Congress.gov (https://www.congress.gov/crs-product/R48444) (Mar. 6, 2025).
[2] Press Gallery, US House of Representatives, Press Gallery (https://pressgallery.house.gov/member-data/party-breakdown) (last visited Jun. 26, 2025) (with three vacancies previously held by Democrats who died during the term); Party Division, U.S. Senate (https://www.senate.gov/history/partydiv.htm) (last visited Jun. 26, 2025) (with 2 independents that caucus with the 45 Democratic senators).
[3] McCarthy, Mia, and Kashinsky, Lisa, Capitol agenda: The hard-liners enter the chat, Politico (May 14, 2025).
[4] Laws, Jasmine, Major SALT Deduction Cap Boost Passes Senate. Here’s Who Would Benefit, Newsweek (https://www.newsweek.com/major-salt-deduction-cap-boost-passes-senate-2093488) (last updated July 2, 2025).
[5] SALT Deduction, Thompson Reuters (https://tax.thomsonreuters.com/en/glossary/salt-deduction) (last updated Mar. 22, 2024).
[6] Standard Deduction, IRS (https://apps.irs.gov/app/vita/content/00/00_13_005.jsp) (last visited June 26, 2025).