The U.S. Senate has passed a significant expansion to the federal deduction for state and local taxes (SALT), more than tripling the cap from $10,000 to $40,000 starting in 2025.
Senators voted 50-50 on President Donald Trump’s broad tax and spending bill on Tuesday, with Vice President JD Vance casting the tiebreaking vote.
The increased SALT deduction cap would phase out for those earning above $500,000 and increase 1 percent annually until 2029, then revert to the current $10,000 limit in 2030.
Why It Matters
The move marks a dramatic reversal in policy on SALT deductions, one of the most contentious features of the 2017 Tax Cuts and Jobs Act, and has implications for millions of taxpayers, especially those living in high-tax states like New York, New Jersey, Illinois and California where property and income taxes often far exceed the old $10,000 cap.
Analysts have said the provision will most likely benefit wealthier Americans who have high property taxes, as taxes paid on income and property ownership are typically the largest for those who itemize their taxes.
What To Know
Prior to 2017, taxpayers who itemized deductions could fully subtract the amount paid in state and local income, property and sales taxes from their federal taxable income.
The Tax Cuts and Jobs Act imposed a $10,000 cap on these deductions, a limit that mostly affected residents of states with higher tax rates.
Along with raising the cap to $40,000 until 2029, the Senate bill also increases a tax break for pass-through businesses to 23 percent while clamping down on a frequently used tax loophole for certain pass-through businesses.
The House bill had proposed the same higher limit and $500,000 income phaseout but for a longer period of time, rising 1 percent each year from 2026 to 2033. The House also blocked certain white-collar professionals from being able to use a popular SALT deduction workaround.
While the Senate version appears to be cheaper for the federal government, given its shorter time frame, the Committee for a Responsible Federal Budget (CRFB) said that “it’s actually far more generous.”
The CRFB said the Senate’s direct SALT relief is “roughly 10 percent larger than the House,” adding that it estimated the Senate changes would cost $325 billion while the House bill would cost roughly $200 billion.
Affluent homeowners and high-income individuals stand to benefit the most from the expanded cap, according to the Tax Foundation’s May analysis.
The Tax Foundation also warned that the Senate’s provisions would cost about $320 billion more than an extension of the existing cap, and cost $150 billion more than a $30,000 cap.
“The bill is already suffering from a math problem,” Tax Foundation analysts wrote. “This is a recipe for worsening deficits at a time when Congress needs to be more concerned about the country’s fiscal outlook.”
What People Are Saying
Owen Zidar, a professor of economics and public affairs at Princeton University, told Newsweek: “The broader bill and the SALT cap increase are a boon for high-income taxpayers, especially high-income private business owners who got a special loophole that lets them avoid the SALT caps. Millions are estimated to lose health insurance coverage. The bill is very irresponsible fiscally. It’s mortgaging our future for our children.
“The increase in the deficits will put pressure on interest rates and crowd out productive investment, hurting economic growth.”
What Happens Next
After being passed by the Senate, the GOP tax bill will now head to the Joint Conference Committee for reconciliation of differences between the Senate and House.
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