In a win for taxpayers, President Donald Trump’s tax reforms are upending the status quo. They have opened the door for a one-year increase in SALT deduction cap for state and local taxes. To pay for their 2017 tax cuts, Republicans imposed an effective cap of $10,000 on the SALT deduction. Repeal of the SALT deduction hit millions of taxpayers hard, particularly those in states with high taxes. Beginning in 2025, the cap will rise to $40,000. With the implementation of this change, thousands of state residents in those states could eventually see substantial tax savings.
The SALT deduction allows taxpayers to deduct certain taxes paid to state and local governments. We’re talking here about all income taxes—corporate and individual alike—as well as all property taxes. Before 2018, there was no cap on the SALT deduction—this helped millions of filers. The introduction of the $10,000 cap was a huge blow for taxpayers in states that have high income and property tax rates.
In 2022, the average SALT deduction was near the $10,000 limit. This trend was especially pronounced in states like Connecticut, New York, New Jersey, California, and Massachusetts. Even so, only 10% of all filers itemized deductions in that tax year. And those who did were overwhelmingly higher earners who in many cases benefited from the SALT deduction more than middle-class taxpayers.
Chen Zhao, a tax policy analyst, noted the implications of the upcoming changes: “This is a sizable benefit to residents of certain states.” The increase in the deduction limit could translate to substantial savings for taxpayers in states with high state and local taxes.
Specifically, New York residents would have claimed an average SALT deduction of $7,092, while Californians would have averaged $3,995. New Jersey and Massachusetts residents claimed average deductions of $3,897 and $3,835. Connecticut residents would have seen an average deduction of $3,133. These numbers go to show how most taxpayers in these states were really just scraping by under the old uncapped limit.
Finally, some states have received little to no benefit from the SALT deduction. This is largely due to the fact that they just impose lower overall tax burdens. Residents in South Dakota would experience the least median savings at $1,033. Close behind are Alaska at $1,052, Nevada at $1,090, Tennessee at $1,097 and New Hampshire at $1,101.
What’s telling is that other states with low potential savings, like Wyoming and North Dakota ranked among the lowest in overall efficiency potential. These findings suggest that while some residents may experience significant relief from the new limits starting in 2025, others will continue to see limited benefits.
Taxpayers need to be prepared for these advances. They need to take more time and consider how the expanded SALT deduction will impact their long-term filing strategies moving forward. That temporary increase to $40,000 might motivate some additional taxpayers to start itemizing their deductions. Most of them wouldn’t have itemized before because they hit the previous cap too early.