SALT Deduction Rises to $40,000: Who Benefits From Trump’s Tax Update

Following the 2017 tax reforms in the United States, several limits and rules were placed on the SALT (State and Local Tax) deduction. Now, in a major update for 2025-2026, the SALT deduction limit has been raised to $40,000, which is likely to benefit many high-income taxpayers. In this article, we will discuss in detail what the SALT deduction is, how it is affected by the new change, and which categories of people can benefit the most from it.

What is the SALT Deduction?

SALT, or State and Local Tax Deduction, is a part of the US tax system. It allows you to deduct taxes paid to your state and local governments from your federal income tax. This includes:

• State Income Tax
• Local Property Tax
• Sales Tax (in some cases)

The primary purpose of the SALT deduction is to reduce the burden of state and local taxes and provide taxpayers with relief on their federal taxes.

Changes to the SALT Deduction Limit in 2025-2026

Previously, the SALT deduction limit was $10,000. However, according to Trump’s new tax update, it has been increased to $40,000, a fourfold increase.

• Increased Deduction Limit: Now, up to $40,000 of state and local taxes can be deducted against federal income tax.
• Benefits for High-Income Taxpayers: Previously, the $10,000 limit was low for high-income families. Now, the exemption of up to $40,000 provides greater relief.
• Maximized Property and State Tax Benefits: Homeowners who pay higher property taxes can now benefit more.
• Example: If a taxpayer was paying $35,000 in state income tax and $10,000 in property tax, they would previously only be eligible for a deduction of up to $10,000. Now, a deduction of up to $40,000 can be claimed.

Who will benefit most from this change?

• High-Income Taxpayers: Taxpayers with incomes above $200,000, who previously paid higher taxes due to the SALT deduction limit, can now enjoy significant relief.
• Property Owners in High-Tax States: States like California, New York, New Jersey, and Illinois have high property and state income taxes. Now, these individuals can benefit from a deduction of up to $40,000.
• Dual-Income Families: Families with two or more incomes who pay both state and local taxes will benefit directly from the new limit.
• Investment Property Owners: Rental or investment property owners who pay property taxes will see their deductions increase, reducing their tax liability.

Impact of the SALT Deduction on Federal Tax

Increasing the SALT Deduction has a direct impact on federal income tax:

• Taxable income decreases – The deduction reduces your Adjusted Gross Income (AGI).
• Federal tax liability decreases – A lower AGI means paying taxes at a lower tax rate.
• Increases refunds or savings – A higher deduction means a higher tax refund or lower payment.
• Note that the amount of the deduction will depend on your total taxable income and tax bracket.

Who will not benefit?

• Low-Income Taxpayers: Those with low state and local taxes will not receive the full benefit of the $40,000 deduction.
• No State Tax States: States like Alaska, Florida, Nevada, and South Dakota do not have a state income tax. Residents of these states can only claim deductions based on property tax or sales tax.

How to use the SALT Deduction correctly?

• Correctly Enter the SALT Deduction on Your Tax Return: Enter the correct calculation of the SALT Deduction on Form 1040 Schedule A.
• Verify Property and State Tax Bills: Payment receipts and bills are required for the deduction.
• Seek Professional Tax Advice: This deduction can be complex for high-income taxpayers. It’s best to consult a CPA or tax advisor.
• Practice Tax Planning: Changes to your tax planning after the SALT Deduction Limit increases may be beneficial.

Tax Saving with the SALT Deduction

• Let’s say your state income tax is $25,000 and property tax is $15,000.
• The previous limit was $10,000; now it’s $40,000.
• The increased deduction could reduce your taxable income by up to $40,000.
• Assuming the federal tax rate is 24%, then tax savings = $40,000 × 24% = $9,600.
• This is a significant financial benefit, especially for high-income taxpayers.

Important Points

• The deduction applies only to federal income tax.
• It is valid only as of Trump’s new tax update.
• State tax laws may vary, so check local regulations.
• Different rules may apply to investment property and business taxes.

Conclusion

Trump’s new tax update has increased the SALT deduction limit to $40,000. This change is very beneficial for high-income taxpayers and residents of high-tax states.

This deduction will reduce federal tax liability, increase tax refunds, and open up new tax planning opportunities. If you are eligible, it’s important to consult your tax advisor to take full advantage of this deduction SALT deduction is no longer just a formality but has become a real financial relief for people living in high-tax states.

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