Tax savings from Trump's $40,000 SALT deduction limit could be highest in these states
The sun shines brightly in New York City on June 4, 2025, as temperatures hit the low 80s, offering a warm welcome to residents who've already benefited from the latest tax reforms.
President Donald Trump's 'big beautiful bill' temporarily raised the federal SALT (State and Local Tax) deduction limit to $40,000 for 2025, a move that has sparked debate among taxpayers and policymakers alike. This change follows a 2017 tax cut that capped the SALT deduction at $10,000, with the limit reverting to its pre-2018 status of being unlimited before 2018. However, the Alternative Minimum Tax (AMT) has since reduced the benefits for wealthy homeowners, forcing many to itemize deductions instead of taking the standard deduction.
According to a Redfin report released last week, residents of certain states could see the largest tax savings from this new law. The report highlights that the SALT deduction's benefits are most pronounced in states with high property values and significant local income tax bases. For instance, New York, California, and New Jersey are expected to see the biggest gains, with median savings of $7,092, $3,995, and $3,897 respectively, according to the analysis.
But here's where it gets controversial: the SALT deduction cap will phase out for households earning over $500,000, with the limit rising annually until 2029 before returning to $10,000 in 2030. Critics argue that this policy disproportionately affects high-income individuals, while supporters claim it ensures fairer tax treatment for those who truly need the benefit.
Redfin's calculations suggest that the typical homeowner could save up to $24,000 annually under the new SALT legislation, but this is based on assumptions about property values, property taxes, and state income taxes. The report acknowledges that local income taxes, which vary significantly by region, are not included in the analysis. Meanwhile, states like South Dakota and Alaska show the smallest median savings, highlighting the uneven distribution of benefits.
Another key point of discussion is the role of the 24% marginal tax rate in determining savings. While the report uses this rate to estimate potential benefits, it emphasizes that the analysis is a simulation with many uncertainties. Researchers note that neither the SALT deduction's impact on state revenue nor its effect on taxpayers is a perfect measure of how states benefit from the policy, as other factors—such as economic growth and political influence—also play a role.
For those looking to maximize their tax savings, the debate over the SALT deduction continues to shape fiscal policy discussions. As the U.S. government navigates these complex issues, the question remains: will the SALT cap ultimately serve as a tool for fairness or a source of ongoing controversy?
