Consider what the Senate has just passed as it relates to their version of federal SALT deduction. That’s an important, though little-noted, piece of President Donald Trump’s multi-trillion-dollar infrastructure spending bill. These changes even go so far as to impose a $40,000 cap on SALT deductions, a limit that will go into effect in 2025. The legislation still needs to achieve first pass muster through the House of Representatives. Only then can it be approved and dispatched to the President so that he may sign it into law.
The One Big Beautiful Bill Act just introduced by the House is a great start. It suggests increasing the SALT cap and lengthening its duration. This difference in proposal shows the overall tug of war over tax policy and who we choose to benefit or unfairly penalize. Both bills end up hitting people in the 37% income tax bracket hardest by cutting back itemized deductions. This unfortunate change may have the effect of diluting some of the benefit of that higher SALT cap in the Senate bill.
The current SALT cap will be adjusted upward starting 1 percent a year from 2026, through 2033. It’s worth pointing out that this limit is scheduled to automatically go down to $10,000 again in 2030. The changes as proposed introduce a $500,000 income phaseout for taxpayers who want to take advantage of the SALT deduction.
Chye-Ching Huang is director of the Tax Law Center at New York University Law. She went further than that to excoriate the SALT provisions in the Senate bill. She referred to them as a “nonsensical approach to tax policy.” She correctly focused on the fact that, at best, they just preserve existing limits and marginally lower them for rich taxpayers, utterly failing to address the loopholes that allow the wealthiest Americans to dodge these limits.
“This SALT ‘deal’ in the latest Senate bill is a nonsensical approach to tax policy.” – Chye-Ching Huang, Executive Director of the Tax Law Center at New York University Law
Whether or not moderate House Republicans would accept those changes from the Senate is an open question. Both chambers of Congress have introduced varying solutions to limit SALT deductions. Lawmakers will have to work through these significant differences to build an agreement that meets the demands of the diverse set of stakeholders.
Since the passage of the Tax Cuts and Jobs Act in 2017, which doubled the standard deduction starting in 2018, taxpayers have experienced fluctuating limits on itemized deductions. The standard deduction still inflates every year, making long-term tax planning for individuals even more complicated.