President Donald Trump’s “Big Beautiful Building” increased the state and local tax credit, known as salt, to $40,000 in 2025. This change is less than 10 years since this tax credit was the first time in history.
Taxpayers who itemize tax deductions can request salt deductions, including state and local income taxes and property taxes. Trump’s 2017 law limited salt to $10,000. Before 2018, deductions were unlimited, but were kept under alternative minimum taxes for some wealthy households.
“This was in effect more than 100 years before the 2017 Tax Cuts and Employment Act passed,” said Rep. Mike Lawler, Rn.Y., who led Capitol Hill’s push to the upper limit.
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Congress introduced unlimited state and local tax credits in 1913. Lawmakers’ goals: Reduced what is considered double taxation.
However, when Republicans needed a way to pay for other tax credits in the 2017 bill, they argued that, based on closing the national and local deductions, they would benefit wealthy Americans, primarily in high-cost living areas.
Those who benefit from a higher salt cap
According to a 2021 report from the Tax Policy Center, households making more than $1 million will receive half of their profit if the salt cap is removed.
However, the data show that less wealthy families are also standing to save them from the caps of being in high cost-of-living areas, particularly outside of major cities.
In 2022, the average salt deduction was nearly $10,000 in states such as Connecticut, New York, New Jersey, California and Massachusetts, according to a bipartisan policy center analysis using the latest IRS data. These high averages show that researchers write “the majority of taxpayers who claim that the deduction hit the $10,000 cap.”
Meanwhile, the states and districts with the highest proportion of salt claims were Washington, DC, Maryland, California, Utah and Virginia.
Also, higher property taxes put pressure on many homeowners. According to the National Association of Realtors, annual property taxes across the country increased 23% between 2019 and 2023.
State and local taxes are important to fund public services. In 2022, New York State and local government spent $15,368 per person. The state collected $12,751 in taxes per person that year, according to the New York Citizens’ Budget Committee.
“It took care of the roads, the bridges and the school district,” said Westchester County executive Ken Jenkins. Westchester County, New York, has the country’s highest property tax bill.
Increasing the deduction cap will ultimately reduce the amount of revenue the federal government will adopt.
This adds to the $1.628 trillion national deficit for fiscal year 2025, according to the Treasury.
The higher salt cap is expected to increase national debt by more than $142 billion over a decade, according to the Tax Commission. The Tax Foundation estimates that the increased cap will cost around $320 billion compared to an extension of existing CAP.
Watch the video above to learn more about why Congress raised its salt cap this summer.
– CNBC Personal Finance Reporter Kate Door contributed to this story.
Amendment: This article has been updated to revise the title of the New York Citizens’ Budget Committee.
