facebook twitter instagram linkedin google youtube vimeo tumblr yelp rss email podcast phone blog external search brokercheck brokercheck Play Pause
OBBBA Deep Dive – Part 2: SALT Deduction Strategies Thumbnail

OBBBA Deep Dive – Part 2: SALT Deduction Strategies

The One Big Beautiful Bill Act (OBBBA) brings one of the most sweeping sets of tax changes we’ve seen in recent years — and with it, a lot of questions. While the headlines make it sound straightforward, the details are complex and the impact will vary significantly from household to household. That’s why I’m breaking down the new rules in a short series focused on what matters most for your financial life.

This is Part 2, where we take a closer look at how state and local tax (SALT) deductions are changing — including the new $40,000 cap, income-based phaseouts, and year-end strategies to consider. For many, the higher cap offers new planning opportunities; for others, the phase-down range could create unexpected “tax torpedoes.”

In the months ahead, I’ll continue sharing updates on how OBBBA affects income taxes, retirement planning, and other key areas so you can stay informed and proactive. Change can feel overwhelming, but you don’t have to navigate it alone. I’m monitoring these developments closely and can help you understand how OBBBA applies to your own plan — and whether taking action before year-end makes sense.

OBBBA Deep Dive – Part 2: SALT Deduction Strategies 

With OBBBA signed on July 4, 2025, the State and Local Tax (SALT) rules change beginning with your 2025 return (filed in 2026). For many households—especially in higher-tax states—this opens planning opportunities before December 31, 2025.

What’s Changing Under OBBBA

1. SALT Cap: $40,000 (from $10,000) starting 2025

  • Applies to state income/sales tax and property tax for itemizers.
  • Indexed +1% per year 2026–2029; scheduled to revert to $10,000 in 2030 (unless Congress acts).

2. New Income Phase-Down (the “SALT torpedo”)

  • For married filing jointly, the enhanced SALT cap phases down as MAGI moves from ~$500,000 to ~$600,000 (MFS ≈ half).
  • Within this band, every $1 of additional income can simultaneously reduce your SALT deduction by ~30¢, creating higher effective marginal rates.
    • Practical takeaway: Avoid unnecessary income in this band if possible; seek AGI-reducers (above-the-line deductions) instead.

3. PTET Still on the Table

  • Many states allow partnerships/S-corps to elect PTET so that state tax is paid (and deducted) at the entity level—not subject to the SALT cap on Schedule A.
  • OBBBA didn’t shut this off; PTET may still help owners above the phase-down range or those with SALT well over $40k.

4. AMT Interactions (especially from 2026 on)

  • SALT isn’t deductible for AMT. OBBBA lowers AMT phase-out thresholds and speeds the phase-out starting 2026, raising AMT exposure for some.
  • If AMT applies, the benefit of larger SALT deductions can disappear—model before you prepay.

Quick Examples

Example A: MFJ, $450k AGI, SALT = $36k

  • You itemize. Under OBBBA, most or all $36k can be deductible (within the $40k cap).
  • Idea: If your assessed property tax or 4th state estimate isn’t yet paid, doing so by 12/31/2025 could help you fully utilize the higher cap this year.

Example B: MFJ, $550k AGI, SALT = $50k

  • You’re in the $500k–$600k torpedo band; your allowed SALT deduction phases down toward $10k.
  • Each additional $1 of AGI can effectively add $1.30 to taxable income (the extra 30¢ from the SALT phase-down), pushing effective marginal rates well above your stated bracket.
  • Ideas:
    • Consider AGI-reducers (HSA, pre-tax deferrals, timing deductions).
    • Evaluate PTET if available and appropriate.
    • Avoid harvesting gains or extra ordinary income here if you can defer.

Can Trusts Help “Multiply” SALT Caps?

In limited cases, separate, bona fide non-grantor trusts (each a separate taxpayer) can have their own SALT limit. But:

  • This is complex and highly scrutinized (economic substance, state residency rules, administrative cost, fiduciary duties, DNI, anti-abuse/step-transaction concerns).
  • Generally appropriate only when there are strong non-tax reasons for trust structures already. Bottom line: Not a plug-and-play tactic; proceed only with specialized counsel and careful modeling.

Year-End 2025 Moves to Consider (Time-Sensitive)

“With careful timing, you may be able to prepay state taxes or restructure deductions to stay below the phaseout threshold.”

For some households, this may be the last year to make strategic prepayments before the new SALT rules take effect. Consider reviewing your 2025 income, state tax payments, and itemized deductions before year-end. Timing matters—especially for those close to the $500,000 AGI phaseout range.

  1. Check your 2025 itemizing picture. With the higher SALT cap and your mortgage/charity deductions, will you itemize? If yes, SALT timing matters.
    2. Property tax timing. If your locality allows and the bill is assessed, paying by 12/31/2025 can boost this year’s SALT use. (Some jurisdictions don’t accept prepayments before assessment—verify locally.)
    3. State estimated taxes. Paying your Q4 2025 state estimate by 12/31/2025 (cash-basis taxpayers) can increase the 2025 SALT deduction (subject to underpayment rules).
    4. Model the torpedo (≈ $500k–$600k MFJ). If you’re in range, avoid pulling income into 2025; look for above-the-line reductions instead.
    5. PTET election review. Business owners: in PTET states, compare 2025 PTET vs. Schedule A SALT under the new cap and your income level.
    6. AMT preview (for 2026 planning). If you exercise ISOs or have big preference items, remember SALT doesn’t help under AMT—and AMT exposure increases starting 2026.

FAQ-Style Cliff Notes

  • Should I prepay state income tax or property tax? Maybe. If you’ll itemize and aren’t in AMT, paying assessed property tax and 2025 state estimates by 12/31 can help. Run the numbers first.
  • If my household MAGI is >$600k (MFJ)? You’re likely back near a $10k SALT deduction (due to phase-down). PTET may still be valuable.
  • What about 2026 and beyond? The higher SALT limit continues (with 1% indexing) through 2029, but AMT gets tighter in 2026—re-check annually.

The Bottom Line

OBBBA’s SALT changes offer real opportunity in 2025, but the phase-down “torpedo,” PTET choices, and AMT make this a “measure twice, cut once” area. A few well-timed payments—and avoiding the wrong income timing—can materially change your outcome.

“A little strategy before year-end can go a long way toward avoiding surprises in April.”

This post is for general education and not tax advice. Coordinate with your CPA/attorney before implementing strategies, as facts and state rules vary.