Republican Presidential candidate Donald Trump has his own proposed legislation – the “big beautiful bill” – which would largely focus tax relief on high earners. It does this in part by raising the federal deduction cap for state and local taxes (SALT) temporarily. In 2025, the SALT deduction limit will go up by $30,000. This modification will make the full deduction equal to $40,000. Though the increase does stand to bring some positive measures, their tangible impact may not be as straightforward as they appear. This is particularly the case for people whose MAGI exceed $500,000.
Starting in 2025, the limit on the SALT deduction will be doubled to $40,000. After that, it will increase by 1% a year until 2029. This cap will return to its old limit of $10,000 in 2030. This expansion is not without a catch—the deduction begins to get phased out for taxpayers with MAGI over $500,000. Once someone makes more than $600,000, their SALT deduction will be reduced to nothing.
Financial expert Jim Guarino explains that between the thresholds of $500,000 and $600,000, individuals will lose 30% of their SALT deduction benefit for every dollar earned in that range. “When people start actually crunching numbers, they might be in for some surprises,” warns Andy Whitehair, underscoring the complexity of the new provisions.
If a person is making $600,000 and they make an additional $100,000 their tax liability would most likely rise. That’s because of the phaseout of the SALT deduction. According to Whitehair’s calculations, that would mean tens of thousands of dollars in added federal tax liability on the order of $45,500. Putting it in terms of an effective tax rate, that’s a massive 45.5% tax on that additional income.
The tax consequences of this phaseout are important for taxpayers looking to make financial moves like Roth individual retirement account conversions. As CPA Robert Keebler has noted, the jump from $500,000 to $600,000 has dire tax consequences. This sudden and acute rise can lead people to reconsider how they are spending their money. For example, consider one taxpayer who starts with an income of $500,000. Once we factor in $75,000 in itemized deductions (including a $40,000 SALT deduction), their taxable income falls to $425,000.
U.S. Representative Josh Gottheimer of NJ emphasized all these points just yesterday, during an on-the-record press briefing outside the Capitol. He reinforced the need for continued vigilance in taxpayer’s new SALT deduction navigation.
This legislation would benefit top earners first and provide immediate help. Because of the complicated phaseout structure, that might lead it to have surprising adverse fiscal effects. The net effect of Trump’s “big beautiful bill” would be highly variable and different by income bracket.
“It’s definitely a quirky little phaseout provision.” – Andy Whitehair