One Big Beautiful Bill Tax Act – How Can You Benefit?

Focus: Getting The Most Of The Increase In Deduction For State And Local Taxes

On July 4, 2025 President Donald J. Trump signed into law H.R.1 – One Big Beautiful Bill Act (“OBBBA”).  OBBBA contains hundreds of provisions including permanently extending the individual tax rates Trump signed into law in 2017, which were originally set to expire at the end of 2025.
One of the provisions allows for individuals to claim a higher Deduction For State And Local Taxes or as they are commonly referred to as the “SALT deduction.”  The SALT deduction permits individuals to deduct as an itemized deduction on their federal individual income tax returns either (1) their state and local income taxes or (2) their state and local general sales taxes. On top of that, individual are also allowed to deduct their real estate taxes.  However, no deduction for all these taxes shall be allowed in excess of the statutory cap.

Prior law

The Tax Cuts And Jobs Act of 2017 (“TCJA”) had capped the SALT deduction at $10,000 ($5,000 for married individuals filing separately) from 2018 through 2025. Prior to 2018, there was no overall limit on the SALT deduction, although its value could be reduced for some high-income earners due to the Alternative Minimum Tax (“AMT”) and the phase-out limitation on itemized deductions.

New law

OBBBA raises the SALT deduction limit to $40,000 ($20,000 for married individuals filing separately) starting in 2025, with a 1% yearly increase through 2029, before reverting to the statutory cap $10,000 ($5,000 for married individuals filing separately) in 2030. What this means is that starting in 2025, individuals can deduct up to an additional $30,000 ($15,000 if married individual filing separately) in State And Local Taxes.  OBBBA also preserved the use of pass-through entity (“PTE”) tax workarounds, allowing business owners in high-taxes states (like California and New York) to utilize their flow-through entities to pay and deduct these State And Local Taxes without being subject to the SALT deduction cap.

But Beware …

The $40,000 ($20,000 for married individuals filing separately) SALT deduction cap starts to phase out once modified adjusted gross income (“MAGI”) exceeds $500,000. This cap amount decreases as your MAGI increases beyond $500,000 with a complete reversion to a SALT deduction cap to $10,000 ($5,000 for married individuals filing separately) once MAGI reaches $600,000. MAGI is essentially adjusted gross income (“AGI”) with some tax breaks added back in. Even with the $30,000 increase in the SALT deduction cap, individuals in high-tax states may still have more in State And Local Taxes paid than what is deductible with IRS so it makes sense to see if you can qualify for a PTE tax workaround.

What Should You Do?

You know that at the Law Offices Of Jeffrey B. Kahn, P.C. we are always thinking of ways that our clients can save on taxes. If you are selected for an audit, stand up to the IRS by getting representation. Tax problems are usually a serious matter and must be handled appropriately so it’s important to that you’ve hired the best lawyer for your particular situation. It is advisable to consult with a tax professional to understand how these SALT changes might affect your specific tax situation, especially if your income is near the phase-out threshold. The tax attorneys at the Law Offices Of Jeffrey B. Kahn, P.C. located in Orange County (Irvine), Los Angeles, San Francisco Bay Area (including San Jose and Walnut Creek) and elsewhere in California are highly skilled in handling tax matters and can effectively represent at all levels with the IRS and State Tax Agencies including criminal tax investigations and attempted prosecutions, undisclosed foreign bank accounts and other foreign assets, and unreported foreign income. Also if you are involved in cannabis, check out what a cannabis tax attorney can do for you.  And if you are involved in crypto currency, check out what a bitcoin tax attorney can do for you.