When the $10,000 cap on the State and Local Tax (SALT) deduction took effect in 2018, the impact in states like New York, New Jersey, and Pennsylvania was immediate and personal.
Clients would show me their tax returns and ask, “How am I paying more in taxes after paying so much already?” They weren’t looking to game the system. They were just trying to reconcile how doing the right thing—owning property, paying state income tax, giving to charity—wasn’t being acknowledged by the federal tax code.
For high-income households in these states, the SALT cap has felt like a double tax penalty. But that may be about to change—at least for a moment.
In May 2025, the House of Representatives passed a proposal to increase the SALT deduction cap to $40,000 for the 2025 tax year. It still needs to pass the Senate, and its future is uncertain. But if this becomes law, the tax planning landscape could shift dramatically—particularly for residents of high-tax states like New York and New Jersey.
Let’s unpack what this means for you—and why now is the time to prepare.
First, a Refresher: What Is the SALT Deduction?
The SALT deduction allows you to deduct state and local income, property, and sales taxes from your federal taxable income—if you itemize.
Before 2018, this deduction was uncapped. But the Tax Cuts and Jobs Act (TCJA) limited it to $10,000, regardless of whether you’re single or married. That cap disproportionately affected high-income households in the Northeast, where property taxes and state income taxes are among the highest in the country.
To put it plainly:
- A couple in Princeton, NJ paying $24,000 in property and state taxes could only deduct $10,000.
- A family in Westchester County, NY with $32,000 in SALT payments saw more than two-thirds of that deduction erased.
- Even in parts of Bucks County, PA, where property taxes often exceed $12,000 on their own, the federal deduction limit hit hard.
Since 2018, many of these households haven’t been able to itemize. As a result, charitable deductions lost value, and strategic tax planning became harder.
What’s in the New SALT Proposal?
Here’s what the House bill proposes:
- A temporary increase in the SALT deduction cap to $40,000 for the 2025 tax year only
- A phaseout for households with adjusted gross income (AGI) over $500,000
- No doubling of the cap for joint filers—meaning married couples don’t get a break
- Possible restrictions on SALT workarounds, including the Pass-Through Entity Tax (PTET) used by business owners
If enacted, this could provide significant tax relief—but only for one year and only for those who qualify based on income.
Why This Matters More in New York, New Jersey, and Pennsylvania
High earners in NY, NJ, and PA are uniquely positioned to benefit from the proposed cap increase—if they plan ahead.
Let’s look at what makes this region distinct:
- State Income Taxes: New Jersey and New York have top marginal rates over 10%. Pennsylvania has a lower flat rate (3.07%), but adds local earned income taxes on top.
- Property Taxes: NJ has the highest average property taxes in the country. Suburbs of Philadelphia and New York City often see annual bills above $15,000.
- Concentration of Dual-Income Households: Many families in the tri-state area cross the $400K–$600K AGI threshold, meaning they are either eligible for or just above the proposed SALT deduction phaseout.
For many of these households, the ability to deduct $40,000 in SALT—rather than just $10,000—changes the entire picture.
What You Can Do If the Cap Increases
Even though this proposal isn’t law yet, it creates a meaningful planning opportunity for 2025. Here are a few specific strategies for families in New York, New Jersey, and Pennsylvania to consider:
1. Start Itemizing Again
The standard deduction in 2025 is projected to be $29,200 for married couples. If your SALT deductions alone hit $40,000, you’ll cross that threshold without even including charitable giving or mortgage interest.
This means:
- You may get a deduction for charitable giving again
- Mortgage interest and other deductions become valuable
- Strategic giving can meaningfully reduce your tax bill
2. Accelerate Charitable Contributions
For clients in NJ or NY who regularly give to schools, religious institutions, or donor-advised funds, 2025 could be a high-leverage year.
You may want to:
- Front-load gifts you were planning to spread out over several years
- Contribute appreciated stock to a donor-advised fund (DAF) and offset a larger portion of income
- Time your giving with income events like bonuses or capital gains
When the SALT deduction pushes you into itemizing territory, every dollar of giving starts working harder.
3. Reduce Income to Stay Under $500K
The proposal phases out the benefit for households earning more than $500,000. If your AGI is close to that threshold, we may be able to reduce it by:
- Maxing out retirement contributions (401(k), SEP IRA, or cash balance plan)
- Deferring bonuses or self-employment income into 2026
- Harvesting losses to offset capital gains
- Timing deductible expenses (like charitable gifts or business expenses) into 2025
For many dual-income families in this region, the difference between qualifying for the full $40K deduction and losing it could come down to planning just 1–2 decisions well.
4. Reevaluate Pass-Through Workarounds
If you’re a business owner in New York or New Jersey using a Pass-Through Entity Tax (PTET) strategy, you may need to revisit your approach.
The new proposal could:
- Eliminate the benefit of PTET elections if the SALT cap is temporarily lifted
- Limit deductions from business-level tax payments
We’ll want to run scenarios to determine whether to use PTET in 2025—or rely on the personal deduction instead.
5. Model Multiple Scenarios—Now, Not Later
If you live in this region and are expecting:
- A large bonus or equity compensation to vest
- A charitable giving goal
- A sale of real estate or business
- A Roth conversion
…then 2025 may be a very important year for tax planning in the next decade.
Because the proposed change is only for one year, timing is everything. Planning now means you won’t be caught flat-footed if the law passes—and you won’t miss the window if it doesn’t.
Why This Moment Feels Different
For years, high earners in New York, New Jersey, and Pennsylvania have felt ignored by the tax code. The $10,000 SALT cap didn’t feel fair, not when your effective state and property tax bill was three or four times that amount.
Raising the cap, even temporarily, feels like a small course correction.
It’s also a reminder: tax planning is about more than the IRS. It’s about aligning your resources with your values. Supporting your community. Giving with impact. Creating financial clarity in a complex world.
What We’ll Do in a Clarity Session
If you’re in New York, New Jersey, or Pennsylvania, and your AGI is near or above $500,000, this could be one of the most important tax years you’ll have.
In a Clarity Session, we’ll:
- Project your 2025 income and model your itemized deductions under both SALT cap scenarios
- Explore charitable giving strategies—especially if you’re considering a donor-advised fund
- Coordinate Roth conversions, capital gains, and income deferrals
- Build a simple action plan so you’re ready regardless of what Congress decides
These aren’t cookie-cutter tax tips. They’re tailored decisions based on your income, goals, and generosity.
If you want to be prepared—without scrambling at the end of the year—I invite you to schedule a Clarity Session.
Let’s make sure this window, if it opens, works for you.
