More details on the new State and Local Tax (SALT) cap of $40,000

I'd like to do a deeper dive on another popular new tax provision. Here's the background:

About 6 years ago, there were several tax law changes. One of them was to limit the Schedule A (itemized deductions) state and local tax deduction to $10,000. This helped cause many taxpayers who previously used Schedule A, to since claim the standard deduction.

This $10,000 cap limited the total amount of one's state and local income taxes and real estate property tax deduction. As you can see, if someone owns a larger home and/or lives in a state with high property taxes, as well as someone that has high income (and thus pays a lot of state income tax), this cap was a bad tax result.

Now, starting with the 2025 tax return, this cap goes way up to $40,000. I believe there will be many current standard deduction filers who will once again itemize and have a better tax result. If you believe you be one of these people, make sure you make any final real estate tax payments or estimated state income tax payments by year end 2025 (coming up quick !)

Some other details about the new $40,000 cap (which, by the way, is currently only going to last 4 years), are as follows:

-The cap begins to be reduced if modified adjusted gross income exceeds $500,000 ($250,000 if married filing separate)

-The cap reduces to $10,000 if modified adjusted gross income exceeds $600,000 (there's no further reductions)

-The cap is not $40,000 for married filing separate (it is $20K: as an aside, the IRS does not like married filing separate and there's a lot less tax benefits for these filers)

-Watch out for the potential impact on AMT

SALT of a different kind