Page 1: What Is the SALT Deduction?
If you own a home or pay a lot in state and local taxes, there’s a tax break that could help you. It’s called the SALT deduction. SALT stands for State And Local Taxes. This deduction lets you subtract certain taxes you pay—like property tax and state income tax—from your federal taxable income.
But there’s a catch. Since 2018, the SALT deduction has been capped at $10,000. That means even if you pay $20,000 or $30,000 in state and local taxes, you could only deduct up to $10,000 on your federal return.
For people living in high-tax states like New York, California, New Jersey, or Illinois, that cap is a big problem. Many of them pay far more than $10,000 in state income and property taxes.
Now, in 2025, there’s a way to possibly increase your SALT deduction to $40,000 and lower your federal tax bill if you live in a high-tax state. Some states have created special programs that work around the cap—and smart taxpayers are paying attention.
Page 2: How to Increase Your SALT Deduction
The key to this workaround is a special rule known as the Pass-Through Entity Tax (PTET). This rule allows small business owners—like people in partnerships, LLCs, or S-corporations—to pay their state taxes through their business, instead of as individuals.
Here’s how it works:
- Your business pays the state tax on your income, instead of you paying it personally.
- The business then deducts the full amount as a business expense on its federal return.
- You get a credit on your state tax return so you’re not double-paying.
This is important because business expenses are not limited by the $10,000 SALT cap. That means you might be able to increase your SALT deduction to $40,000 and lower your federal tax bill if you live in a high-tax state, using this business structure.
Many states like New York, California, and Massachusetts now offer this option. It’s legal, and it has been approved by the IRS in official guidance.
Even if you don’t own a business, some states are looking at laws that allow married couples to claim a higher SALT deduction, sometimes up to $40,000, if they file jointly. These changes may depend on state law and federal rules, so it’s important to stay updated.
Page 3: Strategy and Planning Tips for 2025
If you want to take advantage of this SALT workaround in 2025, you’ll need a solid plan. Here are a few simple but powerful steps:
- Talk to a tax advisor – This is a technical area, and you want to be sure you’re following both federal and state rules correctly.
- Review your business structure – If you own a business, check whether you qualify to pay taxes through your business under your state’s PTET program.
- Track state legislative changes – Your state might offer new options to help you increase your SALT deduction.
- File early – Some programs have deadlines, and acting early can make sure you get the full benefit.
By being smart, you can increase your SALT deduction to $40,000 and lower your federal tax bill if you live in a high-tax state. This gives you more money in your pocket and less going to Uncle Sam.
Remember, tax rules can change. But in 2025, there are more tools than ever to help smart taxpayers protect their income. Whether through a pass-through entity, a new state rule, or tax planning with a professional, this is the year to increase your SALT deduction to $40,000 and lower your federal tax bill if you live in a high-tax state.
