Here is how the new SALT Deduction can save you taxes.
President Trump recently signed the H.R. 1 – One, Big, Beautiful Bill Act (OBBBA). Although there are lots of changes, today we will just address the increase in the State and Local Tax (SALT) deduction. Most Average Joe’s need to pay attention to this.
It can save you taxes.
Standard Deduction Versus Itemized Deductions
Standard Deduction
Taxpayers can deduct either their itemized deductions or the standard deduction, whichever is higher.
For 2025, the standard deduction is $31,500 for married filing jointly and $15,750 for single filers.
Since the middle 1980’s, taxpayers aged 65 or older, have had and additional standard deduction. Before this OBBBA legislation, in 2025, they are entitled to an additional $2,000 for single filers and $1,600 for each spouse aged 65 or older when filing married filing jointly.
The new legislation has now added an additional bonus standard deduction of $6,000 per person aged 65 and older. A married couple, where both are age 65 or older, can claim another $12,000 deduction. This additional bonus standard deduction is available from 2025 through 2028.
If you are eligible, it is important to understand, you get to this additional bonus standard deduction of $6,000 even if you itemized your deductions (see below) and did not take the standard deduction.
There is a phase out for this additional deduction of $6,000. For single filers it is when modified adjusted gross income (MAGI) is $75,000 and for married filing jointly it is when MAGI is $150,000.
Itemized Deductions
The main categories of itemized deductions are:
- Medical
- State and Local Taxes
- Mortgage Interest
- Charitable Donations
Short History
In the past, there was no maximum on the SALT deduction. This changed with The Tax Cuts and Jobs Act of 2017 (TCJA). This act made the maximum amount of SALT deduction only $10,000. This act also, essentially, doubled the standard deduction.
Before this legislation, about 31% of taxpayers itemized their deductions. After this legislation about only 9% of taxpayers itemized their deductions. 1)
Temporary Increased Amount
The SALT deduction increases to $40,000 for 2025.
For 2026 it is $40,400.
For tax years after 2026 and before 2030, the deduction is limited to 101% of the amount in effect for the prior year.
In 2030, the amount reverts to $10,000.
Phase Out
Higher income taxpayers will be subject to a phase out. For both single filers and those married filing jointly, the phase-out starts at $500,000 of Modified Adjusted Gross Income (MAGI) and is fully phased-out at $600,000. The SALT relief was targeted for middle and upper middle-income taxpayers.
Recently we posted Practical Financial Moves for the Second Half of the Year. The first item in the post was to review your withholding and estimated taxes. Elevate this. Have your CPA run a tax projection for you for 2025.
Tell them Tom sent you.
Impact of Pass-Through Entity Tax
In response to the TCJA 2017, 37 states, including Connecticut, adopted a Pass-Through Entity Tax (PET). Pass – Through Entities are Subchapter S Corporations, Partnerships and Limited Liability Companies (LLC’s). This was a workaround to get the taxes deducted at the entity level as taxpayers were subject to the $10,000 SALT limitation.
This legislation does not restrict States ability to continue to have a PET regime.
No State Income Tax Benefit in Connecticut
The OBBBA changes of SALT and the standard deduction affect federal income tax. These changes address whether a taxpayer can reduce their federal income tax.
These changes do not affect Connecticut Income Tax. The State of Connecticut uses the taxpayers federal adjusted gross income as the starting point. There are adjustments made from there. The standard deduction, or itemized deductions are not included in the State of Connecticut income tax calculation and therefore there is no Connecticut Income Tax benefit.
Action Item
If you would like help with How the New SALT Deduction Can Save You Taxes, call Thomas F. Scanlon, CFP®, CPA or E-Mail him at Thomas.Scanlon@raymondjames.com
This article is original content written by Manchester, CT Financial Advisor Thomas F. Scanlon, CFP®, CPA.
- taxpolicycenter.org – Updated January 2024
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