A Higher SALT Cap Could Be a Game Changer for Homeowners in High-Tax States

One of the most significant—and politically charged—provisions in the original 2017 Tax Cuts and Jobs Act (TCJA) was the cap placed on the State and Local Tax (SALT) deduction. Capped at $10,000, the SALT deduction limit disproportionately impacted homeowners in high-tax states such as Illinois, California, New York, and New Jersey.

Now, under President Trump’s proposed new tax bill, there is renewed discussion about raising that cap—potentially to $40,000. For many middle- and upper-middle-income homeowners, this change could significantly reduce their federal tax burden.

Let’s explore the impact using a real-world example.

Case Study: Married Couple in Illinois

Consider a married couple living in Illinois earning $200,000 per year. They own a home with a $15,000 property tax bill and pay approximately $10,000 in Illinois state income tax.

Under the Current $10,000 SALT Cap:

• Only $10,000 of their combined $25,000 in property and state income taxes is deductible.
• The remaining $15,000 in state and local taxes provides no federal tax benefit.
• If they take the standard deduction ($29,200 for married filing jointly in 2025), they likely won’t itemize—meaning their SALT taxes provide no added benefit at all.

Under a Raised $40,000 SALT Cap:

• They could now deduct the full $25,000 in property and state income taxes.
• This could make itemizing more advantageous than taking the standard deduction, depending on other deductions like mortgage interest or charitable contributions.
• At a marginal federal tax rate of 24%, that $25,000 deduction is worth $6,000 in tax savings—a $3,600 improvement over the current capped scenario.

Who Benefits Most?

This change is especially meaningful for:

• Upper-middle-class families in high-tax suburbs
• Dual-income professionals in coastal cities or metro areas like Chicago
• Homeowners with substantial property tax bills and/or high mortgage interest
• Taxpayers who are just above the standard deduction threshold and would benefit from itemizing under a higher cap

The Political and Economic Ramifications

Raising the SALT cap is a politically sensitive issue. Critics argue that it favors wealthier taxpayers. However, in high-cost-of-living regions, the current cap disproportionately impacts middle-class earners, not just the wealthy.

Economically, the change may:

• Boost housing affordability by softening the after-tax cost of property ownership
• Stimulate local economies as taxpayers regain disposable income
• Improve the appeal of homeownership, especially in suburbs facing out-migration due to high taxes

Conclusion

For many Americans, especially in high-tax states, a higher SALT deduction cap would mean more money in their pockets, better tax efficiency, and a renewed incentive to own homes in places where state and local taxes have become an outsized burden.

As the proposed legislation takes shape, homeowners and tax professionals alike will be watching closely—because this single change could rewire the financial calculus for millions of taxpayers.