- President Donald Trump’s “big beautiful bill” increases the SALT deduction limit to $40,000 for 2025.
- However, there’s a phaseout, or benefit reduction, between $500,000 and $600,000 of income.
- Those individuals could face a “SALT torpedo,” or artificially high tax rate, said certified public accountant Jeff Levine.
President
Donald Trump
‘s ‘big beautiful bill’ delivers a temporary
higher limit
on the federal deduction for state and local taxes, known as SALT. But the phaseout, or income-based benefit reduction, could trigger a
tax surprise
for some higher earners, experts say.
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If you itemize tax breaks, you can claim the SALT deduction, which includes state and local income taxes and property taxes.
Trump’s legislation
raises the SALT deduction limit to $40,000 starting in 2025, with a 1% yearly increase through 2029, before reverting to $10,000 in 2030.
However, the $40,000 SALT cap starts to phase out once modified adjusted gross income, or MAGI, exceeds $500,000. The SALT limit drops to $10,000 once MAGI reaches $600,000. MAGI is
adjusted gross income
with some tax breaks added back in.
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This phaseout can create a “SALT torpedo” — an artificially high tax rate — when MAGI falls between $500,000 and $600,000, certified public accountant Jeff Levine
said in a LinkedIn post
this week.
In some cases, you could pay a 45.5% federal tax rate on earnings between those thresholds, experts say.
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Here’s how the “SALT torpedo” works and who could be impacted, according to tax experts.
Under Trump’s legislation, the SALT deduction limit for 2025 is now $30,000 higher. But a 30% phaseout kicks in once MAGI exceeds $500,000 for 2025.
Between $500,000 and $600,000, “you’re losing 30% for every dollar” of benefit between those thresholds, said certified financial planner Jim Guarino, managing director at Baker Newman Noyes in Woburn, Massachusetts. He is also a CPA.
At $600,000, if you multiply the extra $100,000 of income by 30%, that’s a $30,000 benefit reduction, which drops the $40,000 SALT cap back to $10,000.
With the 30% SALT deduction phaseout between $500,000 and $600,000 of MAGI, some individuals could pay a higher-than-expected tax on earnings between those thresholds, according to Robert Keebler, a CPA with tax advisory firm Keebler & Associates in Green Bay, Wisconsin.
Between $500,000 and $600,000, you’re increasing taxable income while losing part of the SALT deduction, which raises your
effective tax rate
— the percent of taxable income you pay.
If taxable income rises while the SALT deduction falls, your effective tax rate on income between $500,000 and $600,000 could far exceed your regular
income tax rate
, Keebler said
in a LinkedIn post
last week.
“It’s definitely a quirky little phaseout provision,” Andy Whitehair, a CPA and a director with Baker Tilly’s Washington tax council practice, told CNBC. “When people start actually crunching numbers, they might be in for some surprises.”
Whitehair also
shared a basic example
of the phaseout on LinkedIn this week.
If your income is $500,000 and you subtract $75,000 of itemized deductions (including $40,000 for SALT), your taxable income is $425,000.
By contrast, $600,000 of income would drop the SALT deduction to $10,000, which reduces itemized deductions to $45,000, and raises taxable income to $555,000.
When comparing taxable income for each example, the true difference is $130,000 with the $30,000 lost SALT deduction. If you multiply that by the 35% tax bracket, you get $45,500.
In this simplified example, there is $45,500 more federal tax owed by earning $100,000 more, which is 45.5%, Whitehair said.
If your 2025 earnings could be near $500,000, you should run projections with a tax advisor and weigh strategies to reduce MAGI, experts say.
With the steep tax penalty between $500,000 and $600,000, you may reconsider Roth
individual retirement conversions
, incurring large capital gains or other moves that could boost your income, according to Keebler.
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