The Future of the SALT Deduction Cap

The $10,000 cap on the state and local tax (SALT) deduction, enacted by the Tax Cuts and Jobs Act (TCJA) in 2017, remains a significant topic of discussion as its expiration approaches at the end of 2025. During President-elect Trump’s campaign, he indicated that he did not intend to extend the limitation beyond its original expiration date. However, economist Stephen Moore, a member of Trump’s advisory council, has suggested that the council is opposed to reinstating an unlimited deduction, arguing that such a move would benefit the wealthiest taxpayers at the expense of the middle class. Instead, the administration is considering raising the SALT cap from $10,000 to $20,000, which Moore claims “would solve the problem for middle-class families in blue states.”

Politicians in high-tax states such as California, New York and New Jersey continue to lobby for a complete elimination of the deduction cap, arguing the limitation disproportionately burdens individuals in their states. The administration recognizes that it will be important to strike a balance between providing relief to individual taxpayers and covering the cost of other TCJA tax cuts the administration would like to extend.

While the future of the SALT cap remains uncertain, there is some relief available for certain taxpayers. Many states have implemented a state pass-through entity tax (PTET) election, allowing pass-through businesses, such as partnerships and S corporations, to pay related state income taxes rather than the owners. This strategy effectively bypasses the SALT cap by reducing the federal taxable income passed through to the owners. This workaround can provide substantial relief for qualifying taxpayers.

Taxpayers and advisors should carefully evaluate the potential benefits of PTET elections as part of their year-end planning. Many states, including New York and New York City, require these elections to be made in early spring, making proactive planning essential.

With strategic planning, taxpayers can position themselves to take advantage of available relief and adapt to any legislative developments. Reach out to Weaver to discuss how these strategies could benefit your specific tax situation and see how we can help you stay ahead of upcoming changes.

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