President Donald Trump’s so-called “big beautiful bill” will temporarily raise the cap on the federal deduction for state and local taxes (SALT) from $10,000 to $40,000 for the 2025 tax year.
A new Redfin report released last week suggests that this change could provide larger tax savings for residents in certain states, depending on their income and where they live.
“This is pretty much what you’d expect,” said Chen Zhao, Redfin’s head of economics research. “There’s a meaningful benefit to homeowners in some areas.”
How the SALT Deduction Works
The SALT deduction allows taxpayers to subtract state and local income taxes, along with property taxes, from their federal taxable income.
- Before 2018: There was no cap on how much you could deduct, although the alternative minimum tax limited the benefit for some higher earners.
- Trump’s 2017 tax law: Capped the SALT deduction at $10,000, significantly reducing deductions for taxpayers in high-tax states.
To take advantage of SALT, you must itemize deductions instead of using the standard deduction. According to the latest IRS data, only about 10% of taxpayers itemized in 2022, and these were typically higher-income filers.
What’s Changing in 2025
Under Trump’s updated legislation:
- The SALT cap will rise to $40,000 for 2025.
- The benefit phases out for incomes above $500,000.
- Both thresholds will increase by 1% annually through 2029.
- The cap will revert to $10,000 in 2030.
This could mean thousands of dollars in extra deductions for homeowners in states with higher property taxes and state income taxes.
States with the Biggest Tax Savings
Redfin estimates that taxpayers in some states will gain significantly more than others. Using typical property values and tax rates, and applying a 24% marginal tax rate, the report projects the following median tax savings:
Top 5 states for savings
- New York: $7,092
- California: $3,995
- New Jersey: $3,897
- Massachusetts: $3,835
- Connecticut: $3,133
States with the smallest savings
- South Dakota: $1,033
- Alaska: $1,052
- Nevada: $1,090
- Tennessee: $1,097
- New Hampshire: $1,101
Zhao cautioned that these figures are estimates based on several assumptions, such as average property values and tax rates, and do not factor in local income taxes, which can vary widely.
Other Insights on SALT Deductions
The Bipartisan Policy Center released a separate analysis earlier this year examining which states rely most on SALT deductions. Their findings align closely with Redfin’s:
- In 2022, the average SALT deduction approached $10,000 in high-tax states like Connecticut, New York, New Jersey, California, and Massachusetts.
- The states where the largest share of taxpayers claimed SALT were Washington, D.C., Maryland, California, Utah, and Virginia.
- States with the smallest share of SALT filers included West Virginia, South Dakota, North Dakota, Ohio, and Wyoming.
However, the report emphasized that no single measure perfectly captures how states benefit from SALT or how they’ll be affected by changes to the cap.
Bottom Line
Trump’s temporary SALT cap increase to $40,000 in 2025 could mean substantial tax relief for high earners in high-tax states, particularly those with significant property taxes. But because the benefit phases out for very high incomes and expires after 2029, taxpayers should view it as a short-term opportunity rather than a permanent tax break.