Lawmakers debate cap again state and local tax deductionsa hot spot since it took effect in 2018 and changed tax bills for millions of people in high-tax states.
The rule, part of the 2017 tax law, limits the amount filers can deduct for state and local income and property taxes. This affects returns filed across the country, but it hits hardest in places with high levies and property prices. The cap expires after 2025, leading to a major decision in Washington next year.
What the deduction looked like before 2018
For decades, itemizing taxpayers could subtract state and local taxes from federal income. There was no dollar cap, although high earners often faced phaseouts under other rules. This changed with the Tax Cuts and Jobs Act.
“Prior to 2018, tax relief – including state and local income and property taxes – was unlimited for filers who itemized deductions.”
At the same time, the standard deduction nearly doubled in 2018, to $12,000 for singles and $24,000 for married couples. Since then, inflation adjustments have increased these amounts. In 2024, the standard deduction is $14,600 for single filers and $29,200 for married couples filing jointly.
What changed under the SALT cap
The law sets a $10,000 limit on the total deduction for state and local income, sales, and property taxes. The cap applies per declaration for most filers. Married couples filing separately can each claim up to $5,000.
The change has reduced the number of people detailing. Many households now find the standard deduction higher than their itemized totals. For homeowners in high-tax areas, the cap often means higher federal taxable income.
Who feels the impact
The cap is particularly felt in states with higher income taxes and high housing bills, such as New York, New Jersey, California and Connecticut. Homeowners with large mortgages and local levies benefit from fewer deductions. Middle- and upper-income families in these areas may face higher federal taxes than before 2018, even if their incomes do not increase.
Opponents argue the cap penalizes states for spending more on schools and infrastructure. Supporters say it prevents the federal tax code from subsidizing higher local taxes and helps finance further rate cuts.
State Workarounds and IRS Tips
After the cap took effect, some states created options to ease the burden on small business owners. Many have adopted pass-through taxes on entities that shift income taxes from individuals to businesses, which can still deduct them federally.
The IRS then issued rules to block some early workarounds aimed at reclassifying tax payments as charitable donations. But the pass-through approach remains common, and more than half of states now offer it in some form.
Recent efforts to change the cap
Congress proposed several adjustments. Proposals included an increase in the cap for married couples, relief linked to income level or an early removal of the cap. A House effort in early 2024 to increase the cap for some filers has not moved forward. With most individual tax provisions set to expire after 2025, the next Congress will face a big decision: whether to extend, modify or end the cap, as well as other parts of the 2017 law.
What owners and filers can do now
Tax results vary widely. Filers should consider whether itemizing is still preferable to the standard deduction and consider timing strategies for deductible expenses.
- Compare your itemized totals to the standard deduction each year.
- Find out if your state offers a pass-through entity tax and if it’s right for your business.
- Track property tax assessments and appeal if they seem high.
- Model scenarios for 2026, when current rules may change.
What to watch next
The debate will intensify as the 2025 deadline approaches. High-tax states will push for higher caps or a complete repeal. Others might favor keeping the limit to help finance rate cuts or deficit targets. Any changes will likely be part of a larger tax package that revisits rates, child credits and the standard deduction.
This decision will shape homeownership costs, state budgets and take-home pay for years. For now, the $10,000 cap remains in place, and careful planning can still make a difference come April 15.
