Property Tax Deduction Limit Significantly Increased

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“SALT Deduction” Based on the “One Big Beautiful Bill Act” (OBBBA), signed into law by President Trump on July 4, 2025, there are significant changes to the state and local tax (SALT) deduction for the 2025 tax year. Here’s a summary of the SALT deduction changes for 2025: * Increased Cap: The $10,000 SALT deduction cap established by the 2017 Tax Cuts and Jobs Act (TCJA) is temporarily quadrupled to $40,000. * Income Threshold for Full Deduction: The increased $40,000 deduction limit applies to households with a Modified Adjusted Gross Income (MAGI) of $500,000 or less ($250,000 for married individuals filing separately). * Phase-Out: For taxpayers with MAGIs exceeding $500,000, the $40,000 cap is phased down by 30% of the amount their income surpasses the threshold. * Minimum Deduction: Even with the phase-out, the law guarantees a minimum SALT deduction of $10,000 for all taxpayers. * Annual Increase: The $40,000 cap and the $500,000 income threshold for the phase-out will increase by 1% annually through 2029. * Reversion: In 2030 and subsequent years, the SALT deduction cap reverts to $10,000. Example If a married couple in a high-tax state has a combined annual income of $450,000 and pays $40,000 in state and local taxes, they would have been limited to a $10,000 SALT deduction under the TCJA rules. However, under the new law, since their income is below the $500,000 threshold, they can deduct the full $40,000 in SALT payments, potentially reducing their taxable income by an additional $30,000. Considerations * Who Benefits: The higher SALT deduction cap primarily benefits those in high-tax states with incomes below $500,000. * “SALT Torpedo”: Taxpayers with MAGIs between $500,000 and $600,000 in 2025 could face a higher effective tax rate due to the phase-out, which could effectively reduce the tax benefit of additional income earned within this range. * Pass-Through Entity Taxes (PTET): The OBBBA did not include provisions to eliminate or restrict deductions for PTETs, which can be used by business owners to circumvent the SALT cap

New Jersey Realtor Richard Choi

New Jersey Korean Realtor Richard Choi