Trump's bigger SALT deduction limit could 'drive higher refunds,' tax expert says — here's who benefits

WASHINGTON – A potential overhaul of the state and local tax (SALT) deduction, a contentious centerpiece of former President Donald Trump's 2017 tax law, is emerging as a focal point in the upcoming battle over the nation's tax code. A proposal to significantly increase the current $10,000 cap could deliver substantial tax relief to a specific slice of the population—primarily higher-income households in high-tax states—and marks a significant pivot from the policy that defined Trump's first term.

The change, if enacted, would represent one of the most consequential shifts in tax policy ahead of the 2025 "tax cliff," when many provisions of the Tax Cuts and Jobs Act (TCJA) are set to expire. For millions of taxpayers, particularly homeowners in states like California, New York, and New Jersey, the future of the SALT deduction will directly impact the size of their annual tax refund.

The Big Picture: Reversing a Signature Policy

The 2017 TCJA dramatically altered the tax landscape. One of its most controversial moves was imposing a $10,000 annual limit on the amount of state and local taxes that households could deduct on their federal returns. Before this change, the deduction was unlimited.

Now, with the 2025 expiration date looming, proposals are circulating that would reverse this cap, at least partially. While details remain fluid, the core idea involves raising the cap substantially, potentially to $40,000 or more, or phasing in increases over several years.

• The Core Issue: The SALT deduction allows taxpayers who itemize their deductions to subtract certain state and local taxes—including property taxes and either income or sales taxes—from their federally taxable income.
• The 2017 Cap: The TCJA limited this popular deduction to just $10,000 per household, a move that disproportionately affected residents of states with high property values and income tax rates. This provision is set to expire after 2025.
• The New Proposal: A potential new framework could raise the SALT cap significantly, a move that would directly benefit those whose state and local tax bills exceed the current $10,000 threshold.

Deconstructing the Deduction: Itemized vs. Standard

Understanding the impact of any SALT cap change requires knowing the difference between itemizing and taking the standard deduction. The 2017 TCJA didn't just cap the SALT deduction; it also nearly doubled the standard deduction.

This two-pronged approach fundamentally reshaped taxpayer behavior. By making the standard deduction so much higher, the law made it mathematically disadvantageous for tens of millions of households to itemize.

The Itemization Hurdle

For a change to the SALT cap to matter to you, your total itemized deductions must be greater than the standard deduction.

• Standard Deduction: For the 2024 tax year, the standard deduction is $14,600 for single filers and $29,200 for married couples filing jointly. The source material projects these to rise to $15,750 and $31,500, respectively, for 2025 due to inflation adjustments.
• Itemized Deductions: These include the SALT deduction (currently capped at $10,000), mortgage interest, charitable contributions, and certain medical expenses.
• The Math: If your combined itemized deductions don't exceed the standard deduction, you simply take the standard deduction, and the SALT cap becomes irrelevant to your tax return. Based on the latest IRS data for tax year 2022, nearly 90% of all filers used the standard deduction.

Who Stands to Benefit Most?

Tax policy experts are in broad agreement: a higher SALT deduction cap would overwhelmingly benefit higher-income earners concentrated in a handful of states. An analysis of various SALT cap relief proposals by the Tax Foundation consistently finds that the highest-earning households would receive the lion's share of the benefit.

The Beneficiaries: A Closer Look

• High Earners: To pay more than $10,000 in state and local taxes, a household typically needs a combination of high income (leading to high state income taxes) and/or valuable real estate (leading to high property taxes).
• High-Tax States: The impact is geographically concentrated. Residents of states like New York, New Jersey, California, Connecticut, Maryland, and Illinois are most likely to be constrained by the $10,000 cap and thus stand to gain the most from its repeal or expansion.
• Itemizers: A higher cap would make itemizing worthwhile for more people. "This is a big one, especially for my clients in high income tax or property tax states," said Tommy Lucas, a certified financial planner at Moisand Fitzgerald Tamayo in Orlando, Florida. By raising the potential SALT deduction, more households could find their total itemized deductions surpassing the high standard deduction threshold.

A Practical Example: How a Higher Cap Changes the Math

Consider a married couple in New Jersey with $20,000 in property taxes and $25,000 in state income taxes. They also have $15,000 in other itemized deductions (like mortgage interest and charitable gifts).

• Under the Current $10,000 Cap:

  • Their SALT deduction is limited to $10,000.
  • Total itemized deductions: $10,000 (SALT) + $15,000 (other) = $25,000.
  • This is less than the projected 2025 standard deduction for a married couple ($31,500). They would take the standard deduction.

• Under a Hypothetical $40,000 Cap:

  • Their SALT deduction would be $40,000 (capped from their total $45,000 in state and local taxes).
  • Total itemized deductions: $40,000 (SALT) + $15,000 (other) = $55,000.
  • This is significantly higher than the standard deduction. They would itemize, reducing their taxable income by an additional $23,500 ($55,000 - $31,500) compared to the current system. This would, as the expert noted, "drive higher refunds" or lower taxes owed.

The Path Forward: A Political Bargaining Chip

The SALT deduction has been a political flashpoint since 2017. Democrats from blue states have relentlessly attacked the cap, arguing it was a punitive measure aimed at their constituents. A Trump-backed proposal to ease the cap would be a surprising political realignment, potentially used as a bargaining chip in broader negotiations.

• The 2025 Cliff: If Congress fails to act, the tax code will automatically revert to its pre-2017 state at the end of 2025. This means the SALT deduction would become unlimited again, but the standard deduction would also shrink, and income tax rates would rise.
• A Grand Bargain: The future of the SALT cap will not be decided in a vacuum. It will be a central piece of a massive legislative debate over whether to extend, modify, or let expire the entirety of the 2017 tax cuts.
• What to Watch: Taxpayers, especially homeowners and high-income earners in affected states, should monitor policy proposals emerging from both political parties. The outcome of the 2024 election will set the stage for a tax policy showdown in 2025 that will have ramifications for household finances for years to come.