The state and local tax (SALT) deduction has become one of the most hotly debated tax issues in recent years. As Congress works on major tax reform in 2025, potential changes to the SALT deduction are at the center of discussions that could affect millions of American taxpayers—especially those in high-tax states like New York, New Jersey, and California. In this article, we'll break down what the SALT deduction is, why it's so controversial, recent developments, and what taxpayers need to watch for as the debate continues.
The SALT deduction allows taxpayers to deduct certain taxes paid to state and local governments—such as income, sales, or property taxes—on their federal tax returns. In 2017, tax reform legislation capped the SALT deduction at $10,000 per year. This cap hit residents of high-tax states particularly hard and has spurred ongoing efforts to raise or remove the limit.
For those living in states with high income or property taxes, the SALT deduction can significantly reduce federal tax bills. However, critics argue that expanding the deduction mostly benefits wealthier households in specific states, while the cost to the federal budget remains high.
In 2025, House Republicans and a group known as the "SALT caucus" have brought the issue to the forefront. Recent negotiations suggest a possible increase in the deduction cap. According to POLITICO, a draft bill proposes raising the deduction limit to $30,000 and introduces a phaseout for filers earning above $400,000. Some lawmakers advocate for an even higher cap, especially for individual filers.
Speaker Mike Johnson has been at the center of these discussions, trying to balance the interests of high-tax state Republicans with concerns from other party members about budget impacts. The "marriage penalty"—the fact that the deduction is not simply doubled for joint filers—is also part of the conversation. For a deeper dive into the political balancing act, Axios provides more background and insights into Johnson’s negotiations with GOP holdouts.
Negotiations have seen strong opinions on both sides. While some agree on the need to raise the deduction cap, others worry about the cost and distribution of benefits. The House Ways and Means Committee continues to refine the proposal. Still, not all members have signed on, and further adjustments are likely as lawmakers try to address budget constraints and opposing priorities.
Should Congress pass an increase to the SALT deduction cap, the biggest beneficiaries would be taxpayers in high-tax states with significant state and local tax bills. However, changes may include income-based phaseouts, meaning high earners could only partially benefit. Those filing jointly should also watch for adjustments regarding the marriage penalty. Discussions remain active; final outcomes are still uncertain.
The debate over the future of the SALT deduction is far from settled. If you’re impacted by the cap, stay informed as Congress moves closer to a potential deal. Understanding the potential changes can help taxpayers plan better for the coming tax years. For the latest updates and in-depth coverage, check out the ongoing live reports from POLITICO and policy breakdowns at Axios.