Trump megabill temporarily increases state and local tax break

During the negotiations over President Donald Trump's signature tax and spending bill this year, one of the most contentious issues was the state and local tax deduction, or SALT.

By letting people deduct the state and local taxes they've paid from their federal tax calculation, the SALT deduction tends to help affluent voters in blue states the most. Blue states tend to have higher state and local taxes than red states, and affluent voters both pay more in taxes and are likelier to itemize their deductions instead of taking the standard deduction. 

A small but pivotal constituency of blue-state Republicans in the narrowly divided House ensured that Trump's megabill included a provision addressing SALT.

The push to expand the SALT deduction flowed from a decision Trump made in 2017. In the tax bill he signed that year, Trump reduced the SALT deduction from being unlimited to having a limit of $10,000.

As a 2024 candidate, Trump promised to "get SALT back" during a visit to Long Island, New York, where the issue is important to many voters.

The bill Trump signed July 4 doesn't restore SALT to its unlimited, pre-2017 format, but it enlarged the maximum SALT deduction, at least temporarily.

Under the new law, taxpayers can deduct $40,000 (for married taxpayers filing jointly) or $20,000 (for married taxpayers filing separately) starting in 2025 — up to quadruple the previous deduction. These amounts will increase by 1% every year through 2029, then revert to $10,000 in 2030.

The increased deduction phases out depending on the taxpayer's income. The phase-out begins when a taxpayer's income hits $250,000 (for married taxpayers filing separately) or $500,000 (for married taxpayers filing jointly). The phase-out ends at $600,000; for taxpayers with that income and higher, the deduction cap will be $10,000, the same as before the new law.

The law doesn't revert SALT to the status quo before 2017, and the change is only temporary. But it provides a significant increase in the SALT deduction for the next five years. We rate it a Compromise.