Senate Republicans Approve Tax Bill with $40,000 SALT Deduction Cap: A Look at Beneficiaries.

On Tuesday, Senate Republicans approved changes to the federal deduction for state and local taxes (SALT), which is part of President Donald Trump’s multi-trillion-dollar spending initiative. This legislation stems from the Tax Cuts and Jobs Act (TCJA) of 2017, which imposed a $10,000 limit on the SALT deduction until 2025, a rule that has caused discontent among lawmakers in high-tax states. The Senate bill, if enacted, would raise the SALT deduction cap to $40,000 starting in 2025, with a phaseout for individuals earning over $500,000. The cap would also see a 1% annual increase through 2029, before reverting back to the $10,000 limit in 2030.

In contrast, the House-approved version under the One Big Beautiful Bill Act proposes maintaining the higher limit for a more extended period, with a similar income phaseout and annual increases until 2033. Before any changes take effect, the Senate’s legislation must go through the House for approval. The response from moderate House Republicans regarding these proposed SALT changes remains uncertain. Historically, the SALT deduction was unlimited for those who itemized their deductions before the TCJA instated the cap.

Although the Senate’s legislation provides greater relief, an analysis from the Committee for a Responsible Federal Budget points out that the SALT relief, when accounting for changes to the alternative minimum tax, is two-thirds larger in the Senate bill than in the House version. Both the Senate and House proposals would reduce itemized deductions for some taxpayers in the highest tax bracket, potentially diminishing the benefits that come from a higher SALT cap, with the House bill prescribing more substantial reductions. Overall, raising the SALT deduction cap would primarily benefit higher earners, while certain pass-through businesses might still find ways to navigate the existing limit under the Senate’s approach. Critics have expressed concerns that these changes favor wealthy individuals while neglecting broader tax policy reform.