Federal deductibility of state and local taxes, aka “SALT,” were a sticking point in the federal reconciliation package. Now that it has passed, how big an effect will the change create?
NACo staff presented their analysis of the federal reconciliation legislation at this week’s meeting of the MACo Legislative Committee, sharing insight into the many policy and fiscal changes encompassed in the so-called “big beautiful bill.”
Among the elements that caught much attention was a federal change in the ability for individuals or households to deduct the state and local taxes paid during the year being taxed. This SALT deduction had been unlimited for decades, until being capped at $10,000 in the 2017 Tax Cuts and Jobs Act.
An article this week in MarketWatch lays out the changes, from a taxpayer perspective, and illustrates why a clear forecast of the effects will be difficult for government income tax purposes, since it depends on the decisions by taxpayers whether to newly itemize or to take the federal standard deduction.
The deduction is rising to at least $40,000 from its current $10,000 limit. That amount will increase each year through 2029, and then it will revert to the $10,000 cap put in place under the Republican tax-code overhaul that Trump signed into law in the first year of his earlier White House term.
The new law stipulates that only people below certain income limits can claim the full SALT deduction.
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Homeowners will have to think hard about whether the higher cap on the deduction makes it worthwhile for them, and they’ll have to start learning fast: These new SALT rules apply to 2025 income-tax returns, which most households will file in early 2026.
Read the complete NACo analysis of the federal reconciliation bill and its county effects on the NACo website.