You Make the Call - July 17, 2025

Question: Jordan and Casey, a married couple filing jointly, live in California and itemize deductions. Their 2025 state income taxes and property taxes will exceed $65,000. Their projected taxable income is $496,000, which places them in the 32% federal marginal income tax bracket for 2025.

On July 4, 2025, H.R. 1 was enacted. Among other provisions, the bill modifies §164(b)(6) to increase the SALT deduction cap to $40,000 for married taxpayers filing jointly for tax year 2025.

How does this affect Jordan and Casey’s 2025 return?

Answer: Because the expanded $40,000 SALT deduction cap applies retroactively to Jan. 1, 2025, Jordan and Casey, who file jointly, may deduct up to that amount on Schedule A (Form 1040), Itemized Deductions.

Although they paid more than $65,000 in state and local taxes, only $40,000 is deductible under the new cap. Any SALT amounts paid beyond $40,000 would be nondeductible and cannot be carried forward.

Under prior law, their SALT deduction would have been limited to $10,000. The new $40,000 cap allows them an additional $30,000 in deductions. Given their income of $496,000, they fall into the 32% marginal tax bracket for 2025 (which applies to income between $394,601 and $501,050 for joint filers).

• Additional deduction: $40,000 - $10,000 = $30,000
• Tax savings: $30,000 × 32% = $9,600

As a result, the higher cap may reduce their 2025 federal income tax liability by $9,600 compared to what they would have owed under the previous law.