As the clock struck Midnight on July 4th, 2025, U.S. President Donald J. Trump beamed with delight as he signed the “One Big Beautiful Bill Act.” The President’s Environmental Youth Awards, held at the White House in Washington, D.C. This massive spending and tax legislation makes the most extensive changes to tax rules in a generation. One provision it contains specifically aims for the State and Local Tax (SALT) deduction, which will disproportionately hurt high earners.
The “One Big Beautiful Bill Act” would raise the SALT deduction cap for four years from $10,000 to $40,000. This amendment goes into effect beginning in 2025. The increase will continue to be a robust increase until 2029. It will increase by 1% each year, however it will revert to its initial cap of $10,000 in 2030. Unlike most other tax credits, this enhancement comes with very strict income limits. If a taxpayer’s MAGI is above $500,000, the SALT deduction cap limit begins to phase out. It is still available but it slowly phases out to $10,000 when MAGI reaches $600,000.
The legislation makes other changes to the SALT deduction. Further, it adds new provisions for 529 college savings plans, allowing them to be used on a wider variety of options. It addresses the income-related monthly adjustment amounts (IRMAA) for Medicare Part B and Part D premiums. It would further set new thresholds of earnings above which the net investment income tax would apply.
Tax advisors, such as Jared Gagne, illuminate the intricacies that are now created by such a change. They consider clients’ current tax brackets and possible deduction phaseouts when advising on Roth conversions. Roth conversions are a way for people to move old pretax or nondeductible IRA money into a Roth IRA, creating future tax-free growth. The general aim of these kinds of conversions is to reduce lifetime tax burdens.
Financial professionals warn that taxpayers near the MAGI phaseout range should think ahead and carefully structure their retirement accounts before performing Roth conversions. If they’re not careful, they’re likely to set off the dreaded “tax bomb.” This admittedly small change could result in massive tax liabilities in future years.
Importantly, around 90% of filers take the standard deduction and get no relief from itemized tax expenditures. Therefore, each year taxpayers must decide whether to take the standard deduction versus itemizing their deductions on their return. This selection is more crucial than ever as recent legislation upends the field of play on tax incentives.
“SALT torpedo,” – unnamed tax expert
Trump’s legislation aims at cutting out unnecessary benefits for specific groups. In particular, it takes a close look at the Public Service Loan Forgiveness program. This bill is coming into effect any day now. It’s important for taxpayers to be informed to know how these modifications will affect their long-term tax and financial planning tactics in the future.