One of the more heavily touted provisions of the One Big Beautiful Bill Act (OBBBA) is expected to bring relief, albeit temporary, to taxpayers who couldn’t deduct all their state and local taxes (SALT) under the Tax Cuts and Jobs Act (TCJA). Specifically, the OBBBA lifts the so-called SALT cap significantly — but some high earners could fall into a trap that actually increases their effective tax rate.

Why This Is Important

The expanded SALT deduction may look like a straightforward tax break, but the OBBBA’s built-in income phaseout means many high-income taxpayers won’t receive the full benefit, and some could end up with higher taxable income than expected. Understanding where your MAGI falls relative to the $500,000–$600,000 phaseout range is critical, as even modest increases in income can trigger disproportionate tax spikes. Early planning can help you avoid the “SALT torpedo,” maximize available deductions, and make informed decisions about whether to itemize, reduce MAGI, or explore SALT workaround strategies.

Sizable Increase in the SALT Cap

Beginning in 2025, taxpayers who itemize their deductions can generally deduct up to $40,000 in SALT. The limit will increase by 1% each subsequent year — $40,400 in 2026 and so on. The TCJA’s limit of $10,000 is set to resume in 2030.

But there’s a catch: The permitted deduction falls by 30% of the amount by which your modified adjusted gross income (MAGI) exceeds a threshold amount. For 2025, the threshold is $500,000. And, when your MAGI reaches $600,000, the previous $10,000 cap applies. The MAGI threshold also increases annually through 2020, by 1% each year.

The increased SALT cap could produce significant tax savings compared with the $10,000 cap — if your deduction isn’t subject to the income-based limit. For example, a single taxpayer in the 35% tax bracket with $40,000 in SALT and MAGI below the threshold amount can deduct an extra $30,000 under the new law. This would save an additional $10,500 in tax ($30,000 x 35%).

However, if your MAGI exceeds the threshold, the calculation is more complicated. For example, if your MAGI is $560,000 in 2025, it exceeds the limit by $60,000. So the cap would be reduced by $18,000 ($60,000 x 30%). The maximum SALT deduction would then be $22,000 ($40,000 - $18,000). Even with that reduction, though, the allowable deduction is more than twice the amount you were allowed to deduct under the TCJA.

SALT Torpedo Looms for High Earners

There’s a substantial caveat for taxpayers whose MAGI falls between $500,000 and $600,000, which some tax experts call the “SALT torpedo.” When your income falls in this range, you don’t just add income — you also lose a portion of the deduction, increasing your taxable income further.

For instance, if your MAGI is $600,000, the $100,000 difference in income over $500,000 actually raises your taxable income by $130,000. Here’s a table that highlights the effects of the SALT torpedo:

As you can see, even though MAGI in these two scenarios differs by only $100,000, the change in the SALT deduction results in a difference in taxable income of $130,000 ($555,000 - $425,000). Assuming this hypothetical taxpayer’s marginal tax rate is 35%, he or she would owe $45,500 in additional taxes ($130,000 x 35%). Depending on the amount of your other itemized deductions, you may want to skip itemizing and instead claim the standard deduction. For 2025, the standard deduction is $15,750 for single filers and $31,500 for joint filers.

Alternative strategies are available to itemize your deductions but avoid the SALT torpedo. Examples of MAGI-reduction strategies include: 

• Deferring income, such as bonuses, to the following year,
• Harvesting the losses in your stock portfolio to offset capital gains,
• Taking qualified charitable distributions, and
• Maximizing your contributions to retirement accounts, health savings accounts and 529 plans.

Another option may be SALT workarounds, where applicable. These vehicles allow individual owners of certain businesses, including partnerships and S corporations, to claim deductions on their 1040 for state taxes paid above the applicable limit. The OBBBA didn’t make changes to the SALT workarounds that were available under the TCJA.

Weigh Your Options

The benefit of the increased SALT cap isn’t necessarily as straightforward as it may seem, particularly for high earners. For more on the tax law changes under the new law, visit our One Big Beautiful Bill Act (OBBBA) Resource Center.