As reported on May 16, 2025, the SALT cap proposal contained in the legislation that was pending in the U.S. House of Representatives (“House”) aimed at, among other things, dealing with the expiring provisions of the Tax Cuts and Jobs Act (“TCJA”) was not well received by lawmakers from high-income tax states such as Oregon, New York, Hawaii and California. That proposal increased the SALT cap from $10,000 to $30,000, but it contained a downward adjustment for taxpayers with “modified adjusted gross income” over $400,000. For this purpose, modified adjusted gross income is adjusted gross income plus any amounts excluded from income under Code Sections 911, 931 and 933. Under that proposal, the $30,000 cap is reduced by 20% of a taxpayer’s modified adjusted gross income to the extent it exceeds $400,000 ($200,000 in the case of a married taxpayer filing separately). However, the SALT cap cannot be reduced below $10,000 ($5,000 in the case of a married taxpayer filing separately).
It appears the SALT cap proposal may have been the last item holding up the passage of the bill by members of the House. After hours of debate and discussion, the proposal was modified, and the House passed the bill on May 22, 2025. It now sits in the U.S. Senate (“Senate”), where it is expected this provision of the bill, among others, will face fierce debate.
The SALT cap, as passed by the House, is marginally better than the original proposal for taxpayers from high-income tax states. It increases the SALT cap from $10,000 to $40,000 (up $10,000 from the previous House proposal). It is, however, subject to a rather harsh downward adjustment for taxpayers with “modified adjusted gross income” over $500,000 (up $100,000 from the previous House proposal). Like the prior proposal, the cap is reduced by 20% of a taxpayer’s modified adjusted gross income to the extent it exceeds the income threshold ($500,000 in the case of married taxpayers filing jointly and single taxpayers, and $250,000 in the case of a married taxpayer filing separately). The SALT cap cannot be reduced below $10,000 ($5,000 in the case of a married taxpayer filing separately). Interestingly, both the cap and the income threshold increase by 1% annually for ten years. If it becomes law, it would be effective for tax year 2025.
If math serves me well, even the enhanced SALT cap provision offers little relief for a significant number of taxpayers from high-income tax states. Here is how it will play out if it becomes law: taxpayers who are single or married filing jointly get some relief from the SALT cap if their modified adjusted gross income is below $650,000. At the $650,000 and above level, the taxpayer reverts to a maximum SALT deduction of $10,000.
EXAMPLE 1: Sally and Harry are married and file jointly, and their modified adjusted gross income in 2025 is $650,000. They paid $67,000 in state and local income taxes and $10,000 in local property taxes. Under the House bill, [$650,000 - $500,000 = $150,000 × 20% = $30,000. $40,000 - $30,000 = $10,000]. They get no benefit from the House’s enhancement to the current SALT cap.
EXAMPLE 2: Sally and Harry are married and file jointly, and their modified adjusted gross income in 2025 is $600,000. They paid $62,000 in state and local income taxes and $10,000 in local property taxes. Under the House bill, Harry and Sally get some SALT relief. Their SALT deduction is capped at $20,000 [$600,000 - $500,000 = $100,000 × 20% = $20,000. $40,000 - $20,000 = $20,000]. They benefit to the tune of $10,000 from the House’s enhancement to the current SALT cap.
EXAMPLE 3: Sally and Harry are married and file jointly, and their modified adjusted gross income in 2025 is $450,000. They paid $49,000 in state and local income taxes and $10,000 in local property taxes. Under the House bill, their SALT deduction is capped at $40,000. There is no downward adjustment in the enhanced SALT cap. So, they fully benefit from the House provision.
EXAMPLE 4: Sally and Harry are married and file jointly, and their modified adjusted gross income in 2025 is $290,000. They paid $25,000 in state and local income taxes and $9,000 in local property taxes. Under the House bill, they get to deduct 100% of the SALT they paid (i.e., $34,000).
EXAMPLE 5: Sally and Harry are married and file jointly, and their modified adjusted gross income in 2025 is $190,000. They paid $18,000 in state and local income taxes and $5,000 in local property taxes. Under the House bill, they get to deduct 100% of the SALT they paid (i.e., $23,000).
Whether the SALT provision of the House bill will remain in any legislation passed by the Senate is yet to be determined. My gut sense is that the provision, as passed by the House (and as illustrated above), will marginally help taxpayers in high-income tax states. However, to be eligible for the relief, a taxpayer’s modified adjusted gross income must be below $650,000. To get the full benefit of the enhanced SALT cap, a taxpayer must have modified adjusted gross income of $500,000 or less. Therefore, if my math is correct, statements saying that the House’s enhanced SALT cap only benefits billionaires or ultra-rich taxpayers are not accurate.
Time will tell where the SALT cap comes out.
PrincipalLarry is Chair of the Foster Garvey Tax & Benefits practice group. He is licensed to practice in Oregon and Washington. Larry's practice focuses on assisting public and private companies, partnerships, and high-net-worth ...
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Larry J. Brant
Editor
Larry J. Brant is a Shareholder and the Chair of the Tax & Benefits practice group at Foster Garvey, a law firm based out of the Pacific Northwest, with offices in Seattle, Washington; Portland, Oregon; Washington, D.C.; New York, New York, Spokane, Washington; Tulsa, Oklahoma; and Beijing, China. Mr. Brant is licensed to practice in Oregon and Washington. His practice focuses on tax, tax controversy and transactions. Mr. Brant is a past Chair of the Oregon State Bar Taxation Section. He was the long-term Chair of the Oregon Tax Institute, and is currently a member of the Board of Directors of the Portland Tax Forum. Mr. Brant has served as an adjunct professor, teaching corporate taxation, at Northwestern School of Law, Lewis and Clark College. He is an Expert Contributor to Thomson Reuters Checkpoint Catalyst. Mr. Brant is a Fellow in the American College of Tax Counsel. He publishes articles on numerous income tax issues, including Taxation of S Corporations, Reasonable Compensation, Circular 230, Worker Classification, IRC § 1031 Exchanges, Choice of Entity, Entity Tax Classification, and State and Local Taxation. Mr. Brant is a frequent lecturer at local, regional and national tax and business conferences for CPAs and attorneys. He was the 2015 Recipient of the Oregon State Bar Tax Section Award of Merit.
