Why It Matters

The One Big Beautiful Bill Act (OBBBA) raised the state and local tax (SALT) deduction cap to $40,000 for filers with modified adjusted gross incomes below $500,000 for tax year 2025, replacing the $10,000 ceiling the Tax Cuts and Jobs Act (TCJA) had imposed since 2018. A Congressional Research Service (CRS) report updated Sept. 25 lays out the fiscal consequences.

The Joint Committee on Taxation (JCT) projects the federal revenue loss from nonbusiness SALT deductions will reach $65.5 billion in fiscal year 2029, the last full year the raised cap is in effect. Over the five-year window from fiscal year 2025 through fiscal year 2029, the projected total revenue loss is $298.4 billion. For the Trump administration, which signed the OBBBA into law, those numbers frame the fiscal trade-off embedded in its signature tax package.

The Big Picture

The OBBBA made the SALT cap a permanent feature of the tax code, but with a built-in reversal: the cap is scheduled to revert to $10,000 for all taxpayers starting in tax year 2030, regardless of income. That sunset will force Congress to revisit the issue before the end of the decade.

The JCT projects that 78 percent of all SALT deduction benefits will accrue to individuals with adjusted gross incomes of $200,000 or more in tax year 2025. The share of returns claiming a SALT deduction is projected to fall from 31 percent in 2017 to 12 percent in tax year 2025, a decline driven by the TCJA's roughly doubling of the standard deduction alongside the cap itself.

Internal Revenue Service Statistics of Income data show the average SALT deduction in the five highest-tax states dropped from $21,500 in 2017 to $9,100 in 2023, while the average in the five lowest-tax states fell only $200 over the same period.

Because the SALT cap does not limit deductions associated with carrying on a trade or business, states have enacted laws shifting tax burdens from individual owners to the business entity itself. A 2026 review by the American Institute of Certified Public Accountants found that 38 of the 42 states with pass-through entity income taxes had enacted such legislation.

The Bottom Line

The CRS report notes that limiting the deduction could result in state and local public spending declines, since the deduction effectively makes the federal government absorb a portion of state and local taxes. With the 2030 reversion to a flat $10,000 cap now written into permanent law, the next Congress will face the same distributional and fiscal pressure points that shaped this debate, only with a larger baseline revenue loss to weigh against any further expansion.

Access the Legis1 platform for comprehensive political news, data, and insights

Access the Legis1 platform for comprehensive political news, data, and insights.

Spot something wrong? Report an issue with this article