By Joel Chouinard, ChFC®
July 23rd, 2025
If you’re a high-earning professional like a Big Law attorney, the IRS just handed you a potential $10,000 gift. But it’s not automatic. You’ll need to take some proactive steps to claim it.
Thanks to the newly introduced One Big Beautiful Bill Act (OBBA), the cap on the State and Local Tax (SALT) deduction has been significantly increased—from $10,000 to $40,000. This opens up a major tax-saving opportunity for high-income earners, especially those in states with high income or property taxes.
Let’s walk through what the SALT deduction is, what’s changed in the new bill, and how to make sure you get the full benefit—yes, even if you live in a no-income-tax state like Texas.
What Is the SALT Deduction?
The SALT deduction allows you to deduct the state and local taxes you pay—things like income tax, property taxes, and sales tax—on your federal return. It’s essentially the federal government giving you a break for taxes you already paid locally.
However, there’s one big requirement: you must itemize your deductions in order to claim it.
What does it mean to itemize?
Instead of taking the standard deduction (which is $30,000 for married couples in 2025), you list out your individual deductions—such as medical expenses (only those that exceede 7.5% of your AGI), mortgage interest, charitable contributions, and SALT taxes. If your itemized deductions add up to more than the standard deduction, then itemizing makes sense.
Example:
Jack and Camille are married. If their itemized deductions total $35,000 in 2025, they should itemize instead of taking the $30,000 standard deduction. That gives them $5,000 more in deductions. But if their itemized total is only $25,000, they’re better off sticking with the standard deduction.
The One Big Beautiful Bill has made it more likely that higher earners will benefit from itemizing. But that also means doing a bit more work to take full advantage.
What Changed With the SALT Deduction Cap?
Here’s the big news: The $10,000 SALT cap is gone—for now.
Between 2025 and 2029, the SALT deduction cap will increase to $40,000, adjusted annually for inflation. In 2030, the cap is scheduled to revert back to $10,000 unless extended by Congress.
Why this matters:
For someone in the 35% tax bracket, every $10,000 in deductions means about $3,500 in tax savings. So this expanded deduction could cut your tax bill by thousands.
If you live in a high-tax state, this could be a game changer.
Example:
A single Big Law associate earning $400,000 in New York City might pay around $37,000 in state and local taxes. Under the old cap, only $10K would be deductible. Now, all $37K can be deducted—resulting in about $9,500 in additional tax savings.*
And it’s not just about income taxes. Property taxes can also be fully deducted under the new cap.
Example:
Let’s say you own a home worth $1 million and pay $20,000 in annual property taxes. Under the old rule, you could only deduct half. Now, you can deduct the full $20,000—an extra $10K in deductions.
There’s a catch:
High earners start to lose this benefit above a certain income.
- The SALT deduction begins to phase out once your Modified Adjusted Gross Income (MAGI) exceeds $500,000. For every dollar over that threshold, your deduction is reduced by 30%. For example, if your MAGI is $550,000—$50,000 over the limit—your SALT deduction would be reduced by $15,000 (30% of $50,000).
- Fully phased out at $600,000 MAGI. At that point, your SALT deduction cap reverts to $10,000.
Planning tip: Consider ways to reduce your MAGI—such as maxing out pre-tax retirement contributions (401(k), HSA, etc.)—so you don’t lose this deduction.
How to Maximize Your SALT Deduction
If you itemize your deductions on your tax return, the IRS allows you to deduct either:
- Your state income taxes, or
- Your sales taxes
But not both. You choose whichever is higher, then add in your property taxes, if applicable.
If you live in a state with high taxes like New York or California, the income tax deduction will likely be higher. But if you’re in a state like Texas or Florida (with no income tax), you’ll use the sales tax deduction instead.
How to track your sales taxes:
This is where it gets a little tricky.
Most people don’t keep a record of every single purchase, and many large expenses (like groceries and daycare) aren’t subject to sales tax. So just looking at total spending won’t give you an accurate number.
Luckily, the IRS offers a Sales Tax Deduction Calculator that estimates your deduction based on your income, family size, and location.
Don’t forget about big-ticket items
In addition to the standard sales tax allowance discussed above, you’re also allowed to add sales tax paid on major purchases.
That includes:
- Cars
- Boats
- Home renovations
Example:
If you buy a $70,000 vehicle and pay 6.25% in sales tax, that’s an extra $4,375 you can tack on to your SALT deduction. That alone could save you over $1,500 in federal taxes if you’re in a high bracket.
So hold on to those receipts.
Final Thoughts
The old SALT cap of $10,000 was so low that most Big Law attorneys maxed it out without even thinking about it. But now—with a cap of $40,000—you have real room to plan ahead and potentially save thousands.
Let’s make sure you’re taking full advantage of every opportunity available to you.
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