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Homeowners in high-tax states can take a victory lap. The House and Senate have agreed to a deal to raise the federal cap on state and local tax (SALT) deductions from $10,000 to $40,000 starting in 2025—potentially unlocking major tax savings for homeowners in states like California, New Jersey, and New York.
The SALT cap has become a sore spot for lawmakers in those states, where rapid property appreciation has driven some tax bills well above the current $10,000 limit. With constituents unable to deduct the full amount, the cap became a political flashpoint and nearly derailed the latest Republican tax-and-spending package after a group of GOP House members threatened to block the bill unless it included more generous tax relief.
Now, the deal is done.
What is the SALT cap and why does it matter?
The SALT cap refers to the federal limit on how much you can deduct in state and local taxes—including property taxes—from your federal income taxes. It was introduced as part of President Trump’s landmark 2017 Tax Cuts and Jobs Act, partly as a way to offset the cost of broader tax cuts.
Since then, home values have soared, along with the property tax bills that come with them. But under current law, homeowners can deduct only up to $10,000 in combined state and local taxes. That means if your property tax bill is $15,000, only $10,000 of it counts as a deduction on your federal return.
The cap has hit homeowners in high-tax states the hardest. In places like California, New Jersey, and New York, high home prices and higher effective property tax rates often push even middle-class families above that $10,000 threshold, leaving them unable to claim a large chunk of what they pay in local taxes.
What’s changing?
After months of negotiation, lawmakers have reached a deal to raise the federal cap on state and local tax (SALT) deductions from $10,000 to $40,000 starting in 2025—a significant jump from the current limit and higher than the previously proposed $30,000 cap.
The change represents a major win for the SALT Caucus, a group of mostly blue-state Republicans who have pushed for more generous relief for their constituents. Some members, including Rep. Nick LaLota (R-NY), had even floated caps as high as $62,000 for single filers and $120,000 for joint filers.
Advocacy from industry groups such as the National Association of Realtors® helped propel the measure forward.
“We’ve worked for months to educate Congress through original NAR research, analysis and polling to demonstrate the value and broad support for the many real estate provisions in this bill,” NAR Executive Vice President and Chief Advocacy Officer Shannon McGahn shared in a press release. “Congressional leaders were receptive to our message.”
Here’s how the updated proposal works:
- The new $40,000 SALT cap would take effect in 2025.
- The benefit would phase out for households earning $500,000 or more.
- Both the cap and income threshold would increase 1% annually through 2029.
- In 2030, the cap is scheduled to revert back to $10,000—unless lawmakers intervene.
How the change could affect you
If signed into law, as it’s expected to be this July 4th, the new cap would offer significant tax relief to a specific group of homeowners—primarily those in high-tax states who itemize deductions and pay well above $10,000 in property and income taxes each year.
Property taxes alone often exceed $10,000 in states like California, New Jersey, New York, and Connecticut. Add state income taxes, and many households could easily reach, or even exceed, the newly proposed cap.
But note, the increased deduction is only relevant for taxpayers who itemize their deductions instead of taking the standard deduction. And the standard deduction is set to increase to $32,000 for joint filers (up from $29,200 in 2024) if the new tax bill passes.