If you’re looking for ways to lower your 2025 tax bill, the State and Local Tax (SALT) deduction could be a game-changer. This IRS tax break allows eligible taxpayers to deduct up to $10,000 in state and local taxes, helping them save money on their federal tax returns. But with strict eligibility rules and a cap on how much you can deduct, it’s crucial to know if you qualify and how to claim it properly.
What Is the SALT Deduction?
The SALT deduction lets taxpayers deduct certain state and local taxes from their taxable income, reducing how much they owe the IRS. This includes:
- Property taxes on real estate, like homes and land
- State and local income taxes withheld from paychecks or paid as estimated taxes
- Sales taxes, which can be deducted instead of state income taxes (but not both)
However, thanks to the Tax Cuts and Jobs Act (TCJA) of 2017, the total deduction is capped at $10,000 for single filers and married couples filing jointly ($5,000 for married taxpayers filing separately).
Who Qualifies for the SALT Deduction?
To take advantage of this deduction, you must itemize your deductions instead of taking the standard deduction. That means listing out your tax-deductible expenses on Schedule A of Form 1040 when filing your tax return. If your total deductions (including SALT, mortgage interest, and medical expenses) exceed the standard deduction, itemizing could save you money.
Keep in mind, though, that high-tax states like New York, California, New Jersey, Connecticut, and Illinois are hit hardest by the $10,000 cap. Homeowners in these states often pay far more in property and income taxes than the deduction limit allows, reducing their potential tax savings.
How to Claim the SALT Deduction on Your 2025 Taxes
If you qualify, here’s how to claim your deduction and maximize your tax savings:
- Gather Your Tax Documents – Collect all relevant documents, including property tax bills, state tax returns, W-2 forms, and receipts for major purchases (if deducting sales tax).
- Choose Between Income or Sales Tax – The IRS lets you deduct either state income tax or state sales tax, but not both. If you made large taxable purchases (like a car or home renovations), deducting sales tax might be the better option.
- Fill Out Schedule A – Enter the total amount of state and local taxes paid, making sure your deduction doesn’t exceed the $10,000 cap.
- File Your Taxes Accurately – Use tax software or a professional to ensure your deductions are applied correctly and to avoid IRS red flags.
Will the SALT Deduction Cap Change After 2025?
As it stands, the $10,000 cap on the SALT deduction is set to expire at the end of 2025 unless Congress takes action. If lawmakers allow the cap to lapse, taxpayers could once again deduct all their state and local taxes, significantly increasing savings for those in high-tax states. However, political debates over whether to extend, modify, or eliminate the cap are ongoing, so it’s uncertain what will happen next.
Final Thoughts
The SALT deduction can be a powerful tax-saving tool, but only if you meet the qualifications and itemize your deductions correctly. If you live in a high-tax state, paying close attention to how you structure your deductions could make a big difference in how much you owe the IRS.
Tax laws are always changing, so it’s a good idea to consult a tax professional or use tax software to ensure you’re getting the best possible refund. Stay informed, plan ahead, and make the most of every deduction available to you.
