By Akemi Kondo Dalvi, CPA/PFS, CFP
The state and local tax (SALT) deduction allows taxpayers who itemize their deductions to reduce their federally taxable income for qualified expenses paid to state and local governments. In doing so, taxpayers are able to reduce their overall tax expense.
Common itemized deductions are property taxes, sales taxes, or income taxes paid to state and local governments. With property values and state income taxes being extraordinarily high in California, the SALT deduction on federal tax returns has been extremely valuable to local taxpayers.
Prior to 2017, there was no limit on the amount of state and local taxes that taxpayers could deduct from their federal income taxes when itemizing deductions. However, in 2017, President Trump signed the Tax Cuts and Jobs Act (TCJA), which capped or limited the SALT deduction to $10,000. For some Californians, that deduction limit created an unexpected and significant increase in annual tax liability.
In 2025, Trump signed the One Big Beautiful Bill Act (OBBBA), further amending the SALT cap. Starting in 2025, the SALT cap increased from $10,000 to $40,000, subject to a phase-down. The cap limit increases by 1% annually from 2026-2029, and reverts back to $10,000 in 2030. Effectively, taxpayers can capitalize on an extra $30,000 of deductions for the next five years, or until a new law is passed.
The current $40,000 SALT deduction benefit decreases for taxpayers when their modified adjusted gross income (MAGI) passes $500,000, and the tax break drops to $10,000 once income reaches $600,000.
The key is that taxpayers must itemize deductions to benefit from the new higher SALT cap. The OBBBA raised the standard deduction for 2025, from the previous IRS inflation-adjusted figure of $15,000 to $15,750 for single filing taxpayers. Likewise, for married-filing-jointly taxpayers, the standard deduction increased under OBBBA from $30,000 to $31,500.
Some strategies to increase deductions above the standard deduction rate and benefit from a higher itemized deduction might be to “bunch” expenses. One strategy incorporates accelerating expense payments into a current year that might normally be spread out over a longer term. For example, in California, property taxes can be paid in two payments, typically due in November and April. However, a property owner has the ability to pay both payments up front, essentially doubling your November tax payment.
Another bunching strategy for California taxpayers who pay quarterly estimated payments might be to pay fourth-quarter taxes by Dec. 31. Although the Q4 tax deadline is Jan. 15, 2026, you can pay before the end of the year. Many other states have similar tax deadlines.
These expense aggregation strategies may allow a taxpayer who would otherwise be subject to the standard deduction the benefit of itemizing in the current year, and taking the standard deduction next year, with offsetting filings until 2030 when the higher SALT cap expires.
It is also notable that the SALT income-based benefit reduction creates what some tax experts have coined a SALT torpedo. In such circumstances, taxpayers who earn between $500,000-$600,000 of modified adjusted gross income may be subject to a federal tax rate of 45.5% on earnings between those thresholds.
For example, those who might be selling a residence or investment with a large amount of accumulated gains may want to be cautious of realizing gain that could inadvertently trigger this unwanted SALT torpedo.
Please consider consulting with your CPA on tax-related matters early if you feel you may be affected. If you want a second opinion on your overall finances, consult your Certified Financial Planner or CPA Personal Financial Specialist. Whether you are exploring charitable gifting strategies, preparing for retirement, or navigating new tax policy changes, we’re here to help you make sense of it all.
The opinions expressed above are solely those of Kondo Wealth Advisors, Inc. (626-449-7783, info@kondowealthadvisors.com), a Registered Investment Advisor in the state of California. Neither Kondo Wealth Advisors, Inc. nor its representatives provide legal, tax or accounting advice.