New limits on state and local tax (SALT) deductions have created some serious tax planning challenges for many of our clients.
These limits are responsible for increasing tax bills for millions of Americans. And even if you’ve never heard of SALT deductions, you’ve probably still felt the impact, especially if you live somewhere with high property taxes or state income taxes.
Here’s what every taxpayer should understand about the changes.
Looking back on the “good old days”
Not too long ago, you could deduct pretty much all of your state and local taxes without worrying about limits. This included:
- State, local and foreign real property taxes
- State and local personal property taxes
- State, local and foreign income taxes
What’s changed?
Starting in 2018, Congress put a cap on these deductions. All of those state and local tax deductions mentioned above are now limited to a combined total of $40,000 for 2025. If you’re married filing separately, you only get half that amount. And if your adjusted gross income is over $500,000, this limited deduction starts to phase out.
There’s an important exception: These limits don’t apply if you paid those taxes for business purposes or investment activities. So if you own rental property or run a business, those related taxes can still be fully deductible.
And there’s one area that got even stricter. If you own foreign property (like a vacation home in Italy), you can no longer deduct the property taxes you pay as a personal itemized deduction.
Minimizing the SALT cap impact
Feeling the pinch from these limitations or not sure how they apply to your specific situation? Contact the experts at Magone & Company or give us a call today at (973) 301-2300.
This document is for informational purposes only and should not be considered tax or financial advice. Be sure to consult with a knowledgeable financial or legal advisor for guidance that is specific to your situation.