Benefits of Bigger SALT Deduction: Who Will Win and Lose Big?

The recent tax cuts passed by Congress have brought about significant changes to the federal income tax laws, with one of the most notable being the increase in the standard deduction. However, the new law also introduces a limit on how much of that deduction can be claimed for state and local taxes (SALT), which has sparked debate among taxpayers and politicians alike about who will benefit from this change. The increased SALT deduction cap is set at $10,000 per individual or married couple filing jointly. This means that those with higher incomes can no longer deduct the full amount of their state and local taxes from their federal income tax bill. For example, a married couple earning $250,000 annually would be limited to a SALT deduction of only $10,000, which is significantly less than what they could deduct under the previous law. Despite the limitations on SALT deductions, many taxpayers may still benefit from this change. For example, those who live in states with high property and income taxes may be able to use their increased standard deduction to offset some of their tax liability. Additionally, those who itemize their deductions may see a significant decrease in the amount they can claim due to the SALT cap, but may still benefit from the higher standard deduction overall. However, there are also groups that stand to lose out as a result of this change. For example, low-income taxpayers who do not itemize their deductions may no longer be able to deduct any state and local taxes on their federal income tax bill. This could put them at a disadvantage compared to higher-income individuals who can claim the SALT deduction in full. Overall, while the increased SALT deduction cap is intended to provide relief for some taxpayers, it may also create new challenges and unequal benefits for others. As such, the debate over this issue is likely to continue as more tax returns are filed under the new law.