The $40,000 SALT goldmine only the wealthy will actually get

President Donald Trump’s “One Big Beautiful Bill” quadruples the state and local tax (SALT) deduction cap to $40,000. Sounds like a sweet perk, right?

Despite all the political fanfare about helping homeowners, the most hyped tax break in decades is actually a mirage that doesn’t help the vast majority of Americans. Instead, experts say it’s a gift to high-income earners in high-tax blue states.

The law increases the $40,000 SALT cap and $500,000 income threshold by 1% each year from 2026 through 2029, then the cap resets to $10,000 from 2030 on.

But here’s the catch: Only 9% of taxpayers itemize deductions, according to the Tax Policy Center. The OBBB just increased standard deductions for the 2025 tax year (filing in 2026) to $15,750 for single filers and married couples who file separately; $31,500 for married couples filing jointly; and $23,625 for head of households. There’s also an additional $6,000 standard deduction available for those who are 65 and older.

"The vast majority of filers — roughly 90%, according to the latest IRS data — use the standard deduction and don't benefit from itemized tax breaks," said Christopher Murray, partner and practice leader for tax services with Aspiriant in San Francisco.

The Committee for a Responsible Federal Budget (CRFB) estimated that the overall tax bill will add $2.6 trillion to the federal deficit by 2035, with SALT relief representing a significant chunk of lost revenue. The Tax Foundation pegs the deficit increase even higher at $3.8 trillion from 2025 through 2034.

So who actually benefits from the higher SALT cap?

The real beneficiaries are high earners in expensive coastal areas.

Here are some examples to show how this plays out.

A California couple earning $500,000 with a $2.5 million home pays over $71,000 in state and local taxes. Under the new cap, they can deduct $40,000, saving them about $9,600 in federal taxes at their 32% marginal rate. They still can't deduct most of their actual tax burden, but this $30,000 additional SALT deduction delivers nearly $10,000 in federal tax savings.

Meanwhile, a couple making $120,000 per year with a $450,000 home in New Jersey pays $12,000 in annual property taxes and $4,200 in state income taxes for a total SALT bill of $16,200. Even with the higher SALT cap, their total itemized deductions will likely still fall short of the $31,500 standard deduction, leaving them with zero benefit from the change despite living in a high-tax state.
In other words, the megabill gives wealthier families a tax break when they’re not the group who needs it most, according to the Institute on Taxation and Economic Policy (ITEP).

“In general, households with incomes over $200,000 are not a group for whom property taxes are a problem,” ITEP analysts Dylan Grundman O’Neill and Nick Johnson wrote. “Those same IRS data show that for those higher-income households, property tax payments as a share of income are less than half as high as they are for lower-income homeowners.”

The tax cliff no one is talking about

The phase-out creates a punishing tax cliff. The $40,000 deduction starts disappearing once a household’s modified adjusted gross income exceeds $500,000. It phases down the $40,000 SALT cap (to $10,000) at a 30% rate for taxpayers making over $500,000.

This means a household earning $550,000 can only deduct $25,000 in state and local taxes, creating an effective marginal tax rate exceeding 45% when combined with federal income taxes. 

"It is potentially bumping your effective tax rate around all of that," Murray said. "The government has gotten very effective with adding little carve-outs to change deductions and minimize the benefit of that."

New SALT cap won’t move homeownership needle

Despite rhetoric about increasing homeownership rates, the reality is that the SALT cap increase doesn’t help make housing more affordable or accessible. 

"I don't think we will ever lose the mortgage interest deduction and the property tax deduction, to some degree, because they are the manifestation of the American dream of owning your home," Murray said. But he added that buyers shouldn't assume homeownership automatically equals big tax savings.

"Some people immediately assume that owning a home is this giant, big tax deduction, and you might find that it's not saving as much in taxes as you thought," he added.

The truth is that couples making $150,000 or less with homes valued up to $600,000 are unlikely to benefit from the SALT deduction at all and would instead take the standard deduction.

How high earners can plan ahead

For those who do benefit, here are some helpful planning strategies to discuss with your financial advisor or tax professional.

Time your tax payments: Consider making a payment in December this year, or bunching tax payments to maximize them without getting into limitations, Murray recommended.

Optimize your business structure: The law preserves the pass-through entity tax (PTET) workaround, which allows business owners to sidestep individual SALT limitations by having their LLC or S-corporation pay state taxes at the entity level.

Manage your income: High earners near the $500,000 threshold might consider strategies to stay below the phase-out, such as maximizing retirement contributions or timing income recognition, Murray said.