House Republicans have given the green light to President Donald Trump’s latest tax and spending legislation, dubbed the “big beautiful bill,” which notably includes a significant shift in the federal deduction limits for state and local taxes (SALT). This move is poised to reshape the tax landscape for many Americans, especially those in high-tax states, and it carries important implications for investors and financial advisors alike.
SALT Deduction: What’s Changing and Why It Matters
Since the Tax Cuts and Jobs Act (TCJA) of 2017, the SALT deduction has been capped at $10,000, a limitation that has sparked controversy, particularly among taxpayers in states like New York, California, and New Jersey. Prior to 2018, SALT deductions were essentially unlimited, though the alternative minimum tax (AMT) curtailed benefits for some wealthier filers.
Trump’s new legislation temporarily raises the SALT deduction cap to $40,000 starting in 2025, with a phase-out beginning for those earning over $500,000. This cap will gradually increase by 1% annually through 2029 before reverting to $10,000 in 2030. This is a substantial increase—four times the current limit—offering notable tax relief to many high-income households in high-tax states.
Who Really Benefits?
It’s critical to understand that the SALT deduction primarily benefits higher earners who itemize deductions instead of taking the standard deduction. Since the TCJA doubled the standard deduction (now $15,000 for singles and $30,000 for married couples filing jointly in 2025), roughly 90% of taxpayers opt for the standard deduction, effectively sidelining itemized deductions like SALT.
According to the Bipartisan Policy Center’s latest analysis, taxpayers in states like Connecticut, New York, New Jersey, California, and Massachusetts reported average SALT deductions close to the $10,000 cap in 2022, indicating many bumped against the limit. Washington, D.C., Maryland, California, Utah, and Virginia have the highest proportions of SALT claimants.
The Bigger Picture: Wealth Concentration and Tax Strategy
While the increased SALT cap is a win for many taxpayers in blue states, it’s largely a boon for wealthier individuals. The Tax Foundation’s May analysis confirms that the benefits skew heavily toward the top income brackets. Moreover, the legislation preserves a SALT cap workaround for pass-through business owners, allowing them to sidestep the cap—a loophole that critics argue exacerbates inequality.
Chye-Ching Huang, executive director of the Tax Law Center at NYU School of Law, points out that the bill “preserves (and lessens) a limit on deductions for wealthy taxpayers while ignoring a loophole that allows the wealthiest of those taxpayers to avoid the limit entirely.” This underscores the ongoing challenge of balancing tax relief with fairness and fiscal responsibility.
What Investors and Advisors Should Do Now
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Reevaluate Tax Planning Strategies: With the SALT cap temporarily quadrupled, high-net-worth clients in high-tax states should revisit their tax planning, especially those with significant state and local tax liabilities. Advisors should model the impact of the higher SALT cap on clients’ after-tax income and investment strategies.
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Monitor Income Thresholds for Phase-Outs: The $500,000 income threshold for SALT deduction phase-out means that clients near this mark should be cautious. Advisors might explore income timing strategies or income-smoothing techniques to maximize SALT benefits.
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Consider State Tax Policy Implications: States with high SALT deductions might see changes in taxpayer behavior, including increased real estate transactions or charitable giving patterns, as the deduction becomes more valuable. Investors in real estate or charitable funds should watch these trends closely.
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Prepare for Reversion in 2030: The SALT cap’s return to $10,000 in 2030 means any tax planning should be forward-looking, with contingency plans for the eventual reduction in SALT benefits.
What’s Next?
The legislation’s temporary nature suggests potential volatility in tax policy over the next decade. Investors should brace for further legislative adjustments, especially given the political tug-of-war over tax fairness and fiscal responsibility. The Congressional Budget Office and Committee for a Responsible Federal Budget have already flagged concerns about the bill’s impact on the deficit, which could influence future tax reforms.
A unique angle to consider: A recent survey by the National Association of Realtors found that in states with high SALT deductions, home sales dipped by 5% post-2017 due to the SALT cap. The temporary increase to $40,000 could rejuvenate housing markets in these areas, presenting opportunities for real estate investors and advisors to pivot strategies accordingly.
Final Takeaway
Trump’s “big beautiful bill” on SALT deductions is not just about tax relief—it’s a signal of shifting priorities in federal tax policy that favor high earners in high-tax states. For investors and advisors, the key is proactive planning: capitalize on the temporary relief, anticipate income threshold effects, and prepare for the eventual return of tighter limits. Staying ahead of these changes will be essential to optimizing client portfolios and navigating the complex tax environment over the coming years.
For those who want to stay ahead of the curve, Extreme Investor Network will continue to provide exclusive, actionable insights that decode the implications of evolving tax policies and market trends. Stay tuned for our deep dives on how these changes ripple through investment strategies and financial planning.
Source: Trump’s ‘big beautiful bill’ passes SALT deduction limit of $40,000