Who Qualifies for the New $40,000 SALT Cap? | California Tax Attorney Guide 2025
The state and local tax deduction (SALT deduction) has become one of the most discussed topics for California taxpayers, especially with the introduction of the new $40,000 SALT cap. If you’re a homeowner, a high-income earner, or a business owner in California, understanding who qualifies for the $40,000 SALT deduction could make a significant difference on your next federal tax return. At The Law Office of Pietro Canestrelli, A.P.C., our experienced California tax attorneys help clients navigate these ever-changing rules, maximize their SALT deduction, and stay compliant with IRS requirements.
What Is the SALT Cap and Why Was It Introduced?
The SALT cap—short for state and local tax deduction cap—limits the amount of state and local taxes you can deduct from your federal tax return. Before 2018, taxpayers could deduct the full amount of their property tax and state income tax (or sales tax). However, the Tax Cuts and Jobs Act of 2017 set a $10,000 SALT deduction limit ($5,000 for married filing separately).
This was a major shift, particularly for residents in high-tax states like California. Many homeowners, professionals, and business owners suddenly found themselves paying much higher federal taxes because their itemized SALT deduction was capped. Now, the conversation has shifted to the new $40,000 SALT cap. But who qualifies, and how can you benefit?
What Is the New $40,000 SALT Cap for 2025?
The new $40,000 SALT deduction cap—recently proposed and under consideration as part of ongoing federal tax reform—would raise the limit on the amount of state and local taxes taxpayers can deduct on their federal returns. The primary goal of this increase is to provide tax relief to those in states with higher taxes, including California, New York, and New Jersey.
Key Highlights:
- $40,000 SALT cap applies mainly to married couples filing jointly.
- The cap remains at $10,000 SALT deduction for most single filers.
- The new cap is expected to take effect for tax year 2025, pending legislative approval.
Who Qualifies for the $40,000 SALT Deduction?
1. Filing Status Matters
Eligibility for the $40,000 SALT deduction is primarily determined by your filing status:
- Married Filing Jointly: You may qualify for the full $40,000 cap.
- Single Filers: The SALT deduction limit remains at $10,000.
- Married Filing Separately: SALT cap is usually $20,000 or remains at $10,000, depending on final IRS rules.
If you’re unsure of your status or want to determine how to maximize your tax savings, consult with a California tax attorney at The Law Office of Pietro Canestrelli, A.P.C.
2. Income Thresholds and Limitations
In some versions of the proposal, the SALT deduction phases out for high-income taxpayers—often those with an adjusted gross income (AGI) over $400,000 or $500,000. For these taxpayers, the SALT cap eligibility may be reduced or eliminated. It’s crucial to check the latest IRS guidelines or work with a San Diego tax attorney for updates.
3. State-Specific SALT Cap Workarounds
Several states—including California—have enacted SALT cap workaround laws for business owners. These allow certain pass-through entities (LLCs, S-corps, partnerships) to pay state taxes at the entity level, which are then fully deductible on federal returns, sidestepping the individual SALT cap.
If you own a business, speak to a California SALT cap lawyer to determine if you qualify for these SALT deduction workarounds.
4. Itemized Deductions Requirement
To benefit from the increased SALT deduction, you must itemize deductions on your federal tax return. Taxpayers using the standard deduction cannot claim the SALT deduction, regardless of the cap.
- For 2025, the standard deduction is projected to be $14,600 for single filers and $29,200 for married couples filing jointly.
- If your total itemized deductions (including SALT, mortgage interest, charitable donations) exceed this amount, you’ll benefit most from itemizing.
How Does the New SALT Cap Work?
Let’s look at how the $40,000 SALT cap could affect your federal tax return:
Example 1:
A married couple in California pays $24,000 in state income taxes and $20,000 in property taxes, totaling $44,000 in state and local taxes.
– Old SALT cap: Only $10,000 could be deducted.
– New $40,000 SALT deduction: Up to $40,000 is deductible, potentially saving thousands on your federal return.
Example 2:
A single filer with $13,000 in combined state income and property taxes would still be limited to a $10,000 SALT deduction under the new law.
To learn more about maximizing deductions, see Maximizing Tax Benefits.
The Importance of the $40,000 SALT Deduction for California Taxpayers
California residents are among those who benefit most from the higher SALT cap due to the state’s:
- High property values and taxes
- High state income tax rates
- Prevalence of business owners with pass-through entities
If you live in Temecula, San Diego, or anywhere in California, and your property taxes and state income taxes routinely exceed $10,000, the new SALT cap could significantly reduce your federal tax burden.
SALT Cap Workarounds for Business Owners in California
Thanks to California’s SALT cap workaround laws, owners of S-corps, partnerships, and LLCs taxed as partnerships can elect to pay state taxes at the business level, allowing for a larger federal deduction.
How the California SALT Workaround Works:
- The business pays California state taxes directly.
- The deduction is taken at the entity level on the federal return, not the individual’s.
- This can provide substantial federal tax savings, even for those above the standard SALT deduction limit.
If you’re a business owner, contact a Temecula tax attorney or San Diego tax law firm to ensure you’re eligible and filing correctly.
Pitfalls to Avoid with the SALT Deduction
1. Changing Legislation
The rules around the SALT deduction limit change often, especially in an election year. The $40,000 cap may be temporary, so keep up with IRS announcements or work with a knowledgeable IRS tax attorney.
2. Alternative Minimum Tax (AMT)
If you are subject to the Alternative Minimum Tax, your SALT deduction may be limited. Discuss your AMT exposure with a qualified tax professional before finalizing your return.
3. Audit Risk and Documentation
The IRS scrutinizes large SALT deductions. Keep accurate records and consult a California tax attorney if you receive an audit notice.
4. Other Deductions
Remember, your itemized deductions (including mortgage interest and charitable donations) must exceed the standard deduction to benefit from the SALT cap.
Frequently Asked Questions About the New $40,000 SALT Cap
Q: Does the $40,000 SALT deduction apply to all taxpayers?
No. It’s primarily for married couples filing jointly, and certain income thresholds may apply.
Q: Is there a SALT cap workaround for business owners?
Yes. In California, the pass-through entity SALT deduction allows many business owners to bypass the individual limit.
Q: What taxes qualify for the SALT deduction?
Eligible taxes include state and local income taxes, property taxes, and personal property taxes. Federal taxes, estate taxes, and excise taxes are excluded.
Q: Can I carry forward unused SALT deductions?
No. You can only deduct SALT payments for the year in which they’re paid.
Q: How do I know if I should itemize or take the standard deduction?
Work with a California tax attorney to compare both options based on your unique tax situation.
Why Work With The Law Office of Pietro Canestrelli, A.P.C.?
The SALT deduction and the new $40,000 SALT cap present valuable tax planning opportunities for California residents and business owners—but only if you qualify and file correctly. At The Law Office of Pietro Canestrelli, A.P.C., we offer:
- Personalized SALT deduction eligibility analysis
- Strategic tax planning for individuals and businesses
- Representation in the event of an IRS or California state audit
- Up-to-date guidance on the latest tax reform and deduction limits
- Local expertise in Temecula, San Diego, and throughout California
Maximize Your SALT Deduction With an Experienced California Tax Attorney
Don’t leave money on the table! If you believe you may qualify for the $40,000 SALT deduction or want to explore your options as a business owner, reach out to The Law Office of Pietro Canestrelli, A.P.C. Our attorneys will help you maximize your tax benefits while staying compliant with all federal and state regulations.
Contact us today for a confidential tax consultation.
