Do you itemize? Trump's Congress could raise the cap on the SALT tax deduction in 2025
This is the final tax year for a cap on the federal government's State and Local Tax (SALT) deduction, which reduces your IRS income tax bill based on taxes you've already paid to state and local governments.
Incoming President Donald Trump and Congress will likely negotiate a replacement, however. Raising the cap is also on the table.
What is the SALT deduction?
A significant portion of federal tax income is distributed throughout the country for state and local government priorities. In an effort to avoid double taxation, Congress created the State and Local Tax Deduction. It's been on the books in some form for over a century, even before the United States had a permanent federal income tax.
Trump signed a law that capped the deduction at $10,000 during his first term in office. That means if you can prove you paid up to $10,000 on local income and property tax, your federal income tax liability can be reduced by that much.
In other words, once you've already paid $10,000 in taxes to state and local governments, the IRS lets you subtract that much from what you owe to them. That part of the Tax Cuts and Jobs Act of 2017 expires at the end of this year.
Who takes the SALT deduction?
Many taxpayers aren't directly affected by the SALT deduction and instead, take the standard deduction when filling out federal tax forms. Using the standard deduction is easier to calculate since it does not require taxpayers to itemize their deductions.
Instead, it's mostly used by people with valuable property or high income who also live in places that have a high tax rate. According to an analysis by the nonprofit Tax Foundation, more taxpayers claim the deduction in states like California and New York, with concentrated pockets of taxpayers around Denver, Salt Lake City and other wealthy cities.
Will the SALT deduction cap be extended?
Extending the cap will likely be among the policy issues discussed in the halls of Congress this year since it expires in December.
Blue-state Republicans recently met with Trump and came out of the meeting confident that not only will the cap be extended, but would be increased, according to Roll Call. Doing so would let the administration claim an early victory on tax cuts.
Negotiations over increasing the SALT deduction cap include talks of doubling it to $20,000 or even allowing federal tax filers to deduct up to $60,000.