INSIGHT

SALT Deduction 2025: What Changed With the New Tax Bill? 

Jen Coyne, Sue P. Leighton • December 23, 2025

Services: State and Local Taxes

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The state and local tax (SALT) deduction has undergone its most significant transformation since 2017. On July 4, President Trump signed H.R. 1, the One Big Beautiful Bill Act (“OBBBA”), into law, bringing substantial changes to how taxpayers can deduct their state and local taxes on federal returns. For millions of Americans—particularly those in high-tax states—these modifications represent both opportunities and complexities that require immediate attention as we move through 2025. 

This analysis examines what changed, who benefits most, and how these modifications affect your tax planning strategies. Whether you’re a business owner, high-net-worth entity, or organization managing complex state tax obligations, understanding these changes is crucial for optimizing your 2025 tax position and beyond. 

Key SALT Changes Affecting High-Earners 

The OBBBA introduces a temporary but substantial increase to the SALT deduction limit. The law increases the $10,000 SALT cap to $40,000 and phases down the $40,000 SALT cap (to $10,000) at a 30% rate for taxpayers making over $500,000. For married filing separate taxpayers, the benefits are proportionally adjusted. The $40,000 cap becomes $20,000, and the income threshold drops to $250,000 for the phaseout calculation. This represents a four-fold increase for eligible taxpayers, providing significant relief for individuals   in high-tax jurisdictions. 

The income-based limitations add complexity to the new structure. An individual with $550,000 of AGI in 2025 would exceed the $500,000 threshold by $50,000. Applying the 30% phaseout, $15,000 of the deduction would be disallowed, leaving them eligible to deduct $25,000 in SALT. For higher earners, those with $750,000 of AGI would see a $75,000 reduction in their allowable deduction, which would phase down to the minimum guaranteed amount of $10,000. 

The timing of these changes creates both immediate opportunities and future planning considerations. The law increases the $40,000 SALT cap and $500,000 income threshold by 1% each year from 2026 through 2029, with the cap reset to $10,000 from 2030 onwards. This temporary nature means individuals need to consider both short-term tax optimization and long-term planning strategies. 

At BPM, we help business clients manage these complex interactions between federal and state tax obligations, ensuring you maximize available deductions while planning for future changes in the tax code. 

How Businesses can Navigate SALT Workarounds 

One of the most significant aspects of the new legislation is what it doesn’t change: the preservation of pass-through entity tax (PTET) workarounds. The OBBBA does not change SALT deductibility for either pass-through businesses—such as S corporations and partnerships—or C corporations. This represents a major victory for business owners who have relied on these state-level strategies to circumvent the federal SALT cap. 

Understanding PTET Mechanisms 

Pass-through entity taxes work by allowing businesses to pay state income taxes at the entity level rather than having individual owners pay them personally. Since the SALT deduction cap generally applies to individual taxpayers and not entities, the pass-through entity can deduct the full amount of state tax paid at the federal level. The owners then receive state tax credits equivalent to the amount paid at the entity level. 

According to the American Institute of Certified Public Accountants, many states have enacted PTET workarounds since the 2017 TCJA limitation. These programs vary significantly in their qualification criteria, election rules, and credit allowances, but they generally follow similar principles. 

Key Points for Business Owners: 

• Deductibility at the entity level, bypassing individual SALT caps 
• Dollar-for-dollar credits to owners for taxes paid by the entity subject to certain limitations 
• Elections and timing of payments vary by state 
• Coordination with multiple state jurisdictions for multi-state businesses 

The preservation of PTET workarounds under the new law means business owners can potentially benefit from both the higher individual SALT cap and the continued availability of entity-level deductions. This dual approach requires careful coordination with tax professionals to optimize the combined benefit. 

For businesses operating across multiple states, the complexity increases substantially. Different states have varying PTET rules, credit mechanisms, and conformity requirements. Some states that previously enacted temporary PTET provisions have sunset clauses at the end of 2025 and will require legislative extensions to continue these benefits. 

Learn more about our State and Local Taxes (SALT) Accounting Consulting Services

Advanced Planning Strategies for Wealth Preservation 

Planning Alert: With the temporary nature of the increased SALT cap, business owners need strategies that work both during the enhanced period (2025-2029) and after the reversion to $10,000 in 2030. 

The enhanced SALT deduction creates several sophisticated planning opportunities that require immediate attention. Given the temporary nature of these changes, timing becomes crucial for maximizing benefits while positioning for the future reversion. 

Strategic Timing Considerations 

The income phaseout mechanism presents unique planning challenges and opportunities. Individuals approaching the $500,000 modified AGI threshold should consider income timing strategies to maximize their SALT deduction benefit. This might involve: 

• Deferring income to stay below the AGI threshold  
• Accelerating deductions to reduce modified AGI calculations 
• Timing asset sales to coordinate with SALT deduction availability 
• Managing retirement plan distributions to optimize total tax impact 

Multi-Entity Structure Optimization 

For business owners with complex entity structures, the interaction between individual SALT deductions and entity-level PTET elections requires careful analysis. Some considerations include: 

Strategy	Benefit	Risk Factor
Entity-level PTET election	Full deductibility regardless of owner income	State law changes could eliminate option
Individual SALT maximization	Direct benefit on personal returns	Subject to income phaseouts and caps
Hybrid approach	Optimizes both entity and individual benefits	Requires ongoing monitoring and adjustment

The ability to use both entity-level PTET elections and enhanced individual SALT deductions creates opportunities for sophisticated tax planning. Business owners might elect PTET for a portion of their state tax obligations while maximizing individual SALT deductions through strategic income management. 

Legislative Outlook and Future Considerations 

Critical Timeline: The enhanced SALT cap reverts to $10,000 in 2030, creating a potential tax increase for businesses owners and individuals who have grown accustomed to higher deduction limits. 

The Congressional Budget Office estimates that the new law will increase federal deficits by $3.4 trillion between 2025 and 2034. This substantial fiscal impact makes future modifications to the SALT provisions likely subjects of political debate. Business owners should prepare for potential scenarios including: 

• Early sunset if fiscal pressures mount 
• Extension negotiations as 2030 approaches 
• Modified caps that differ from current provisions
• Alternative limitations that could replace the current structure 

Technology and Compliance Considerations 

The increased complexity of SALT deduction calculations, combined with varying state PTET rules, places greater emphasis on sophisticated tax compliance systems. Business owners might consider investing in: 

• Tax software capable of handling complex SALT calculations 
• Professional advisory relationships with multi-state experience
• Documentation systems that support both current benefits and future audits 
• Regular compliance reviews to help ensure ongoing optimization 

The interaction between enhanced individual SALT deductions and entity-level PTET elections requires careful tracking throughout the year. Business owners can’t simply “set it and forget it” – these strategies require ongoing monitoring and potential adjustments based on actual income and tax liability developments. 

How BPM helps clients optimize their tax positions 

The complexity of the new SALT deduction rules demands sophisticated tax planning that goes far beyond simple compliance. At BPM, we understand that business owners face a unique challenge: maximizing immediate benefits while preparing for the inevitable reversion to lower caps in 2030. 

Our Integrated Approach to SALT Planning 

We don’t view SALT deduction planning in isolation. Instead, our advisory teams integrate these strategies with broader business objectives, cash flow management, and long-term growth planning. This comprehensive approach helps to ensure that tax optimization supports rather than constrains your business development goals. 

Our process begins with a thorough analysis of your current tax position across all jurisdictions where you operate. We examine entity structures, income streams, and existing PTET elections to identify immediate optimization opportunities. Then we model various scenarios to understand how different strategies perform under changing income levels and future legislative environments. 

Specialized Services for Complex Situations 

Multi-State Business Operations: For clients operating across multiple states, we coordinate PTET elections and individual SALT strategies to maximize total benefits. Our state and local tax specialists understand the nuances of different jurisdictions and can identify opportunities for tax arbitrage between states with different approaches to pass-through entity taxation. 

Entity Structure Optimization: We regularly review client entity structures to help ensure they remain optimal under current tax law. The enhanced SALT deduction may make certain structural changes advantageous. 

Succession Planning Integration: For business owners approaching retirement or considering succession planning, we coordinate SALT strategies with wealth transfer objectives. The temporary nature of the enhanced deduction creates time-sensitive opportunities for tax-efficient business transfers. 

Looking to optimize your business tax strategy under the new SALT deduction rules? Contact BPM to explore personalized solutions that maximize your current benefits while preparing for future tax law changes.