The One Big Beautiful Bill Act passed the House of Representatives on May 22, 2025, and it introduced broad changes to the U.S. tax code, with a notable raise in the limit of the state and local tax (SALT) deduction. The bill, which lifts the cap to $40,000 from $10,000, promises substantial relief to homebuyers in high-priced markets while sparking arguments over fiscal fairness and political bargaining.
The SALT deduction threshold: From $10,000 to $40,000
The SALT deduction permits taxpayers to deduct state and local property, income, and sales taxes from taxable federal income. The $10,000 cap, introduced by the 2017 Tax Cuts and Jobs Act (TCJA), affected homeowners in high-tax states such as New York, New Jersey, and California. The new legislation quadruples this threshold four times to $40,000, prospectively applying to the tax year 2025. Most prominently, the cap completely sunsets for single filers with more than $500,000 and joint filers with more than $1 million, with inflation adjustments annually.
This change is a reaction to growing pressure from politicians in the higher-cost states, where rising property values pushed more middle-class homeowners into higher tax brackets. To illustrate, a family paying $25,000 in property taxes would previously only be able to deduct $10,000; $15,000 of further deductions would take income off their tax base.
Political negotiations and compromises
The SALT provision was a key bargaining chip in the GOP’s broader tax and spending proposal. House Republicans in Democratic districts that are GOP incumbents running for reelection in 2026 were battling relief for constituents that fall under the TCJA cap. The proposals initially suggested the $30,000 cap, but the final deal between Speaker Mike Johnson and the GOP’s “SALT Caucus” used the higher $40,000 threshold.
But the compromise did give in to budget conservatives. The high-earner phase-out ensures the deduction benefits middle- and upper-middle-class families and not high-income groups. The bill also disallows SALT deductions to professional service providers like attorneys, accountants, and financial advisors by capping pass-through entity taxes (PTETs).
Impact on housing markets and regional equity
Real estate professionals consider the expanded deduction filling a gap in purchasing power in heavily taxed states. The National Association of Realtors had cautioned that the $10,000 limit discouraged homeownership by eroding tax savings. By reversing the expanded deduction, the GOP feels that it has a way of making up for falling home prices in regions such as the Northeast and Coastal California.
Critics respond that the policy still disproportionately benefits wealthy homeowners. A family that makes $450,000 and has a $2 million mortgage and pays $40,000 in taxes would save about $12,000 a year under the new threshold (assuming a 30% tax bracket). Renters and people who live in low-tax states get nothing directly.
Differences with previous GOP tax plans
The 2025 proposal differs from previous Republican proposals. The 2017 TCJA sought to balance corporate tax reductions by capping SALT deductions, making it unpopular with both sides of the aisle. The 2025 Senate plan at first tried to abolish SALT entirely but was opposed by House Republicans. The new law’s phased approach-gradually raising the limit while scaling back high-income earners—is a lesson from the political fights that led up to it.
Importantly, the bill does not exclude other housing-related deductions. Unlike the 2017 House bill that attempted to reduce the mortgage interest deduction cap to $500,000, the 2025 bill keeps the $1 million limit for home-owners.
Criticism and long-term concerns
Democrats and liberal organizations have criticized the SALT revisions as a giveaway to the upper middle class. Senator Elizabeth Warren (D-MA) railed against the phase-down structure, arguing that households earning somewhat less than $500,000 would receive disproportionate benefits. Budget hawks also warn the policy could accelerate budget deficits, as the nonpartisan Tax Foundation estimates the SALT expansion would cost $150 billion over a decade.
Additionally, the $40,000 1% annual limit may not have a chance to keep up with inflation in higher-cost areas, and demands for reform could again be sparked. “Massachusetts property taxes are up 25% since 2020—this deduction is temporary relief but doesn’t solve system issues,” said Boston tax lawyer Dan Ryan.
Read more: SALT Deduction on IRS: Can I deduct state and local taxes on my federal return?
Read more: Standard deduction in 2025 for heads of household: How much can I deduct depending on my income and filing status?
