SALT Cap Raised to $40K: What NJ and NY Taxpayers Need to Know

March 3, 2026

By: Laurie Smith

Partner, Tax

Key Takeaways

The SALT deduction cap has increased from $10,000 to $40,000 under the One Big Beautiful Bill Act (OBBBA), effective for tax years 2025 through 2029.
The $40,000 cap phases out for taxpayers with modified adjusted gross income above $500,000, but never drops below $10,000.
The cap increases 1% annually through 2029, then reverts to $10,000 in 2030 — making this a time-sensitive planning opportunity.
NJ BAIT and NY PTET workarounds remain relevant, especially for high earners above the phaseout threshold.
Bottom Line: NJ and NY taxpayers should review their 2025 tax position now — the window to maximize this benefit is open, but it won’t last long.

If you own a home in New Jersey or New York, the $10,000 SALT cap has been one of the most frustrating features of the federal tax code since the Tax Cuts and Jobs Act of 2017. For eight years, high earners in high-tax states have paid significantly more in federal taxes than their counterparts elsewhere, with little relief in sight. That changes now. The OBBBA raises the SALT deduction cap to $40,000 starting in 2025, and while it comes with important limitations, the shift creates real planning opportunities for NJ and NY clients. Here’s what it means for you.

What Changed — and What Didn’t

The OBBBA temporarily raises the SALT deduction cap from $10,000 to $40,000 for individuals ($20,000 for married filing separately) for tax years 2025 through 2029. The cap will increase by 1% annually during that period.

The catch: the deduction phases out for taxpayers with modified adjusted gross income (MAGI) above $500,000. For those earners, the benefit is reduced — though the deduction never falls below $10,000, regardless of income level. In 2030, the cap reverts to $10,000 unless Congress acts.

This is meaningful relief for a large portion of NJ and NY taxpayers — particularly those in the $200,000 to $500,000 income range who itemize deductions and have been squeezed by the old limit for years.

Who Benefits Most

The biggest winners are taxpayers who:

Itemize deductions (rather than taking the standard deduction)
Have combined state income and property taxes exceeding $10,000, which describes the majority of homeowners in NJ and NY
Have MAGI below $500,000, allowing them to claim the full $40,000 deduction

For context: the average property tax bill in New Jersey is among the highest in the country, often exceeding $9,000 to $12,000 per year on its own. Add state income taxes, and most NJ and NY taxpayers with moderate-to-high incomes were previously leaving significant deductions on the table. At $40,000, many will now be able to deduct the full amount of their combined state and local taxes.

The High-Earner Phaseout: What It Means in Practice

For taxpayers with MAGI above $500,000, the deduction phases out but never drops below $10,000. This phaseout is an important planning variable — particularly for business owners and high earners who have flexibility in how and when they recognize income.

If your income fluctuates year to year, strategic income timing could help you stay under the $500,000 threshold in some years and capture the full $40,000 deduction. This is the kind of proactive planning that should be on every NJ and NY taxpayer’s radar right now.

Should You Still Use NJ BAIT or NY PTET?

Pass-through entity (PTE) tax regimes — New Jersey’s Business Alternative Income Tax (BAIT) and New York’s Pass-Through Entity Tax (PTET) — were designed to help business owners work around the old $10,000 SALT cap by moving the tax payment to the entity level, where it’s fully deductible as a business expense.

Now that the cap has increased to $40,000, the calculus changes — but PTE taxes don’t disappear as a useful tool.

For taxpayers below the $500,000 MAGI threshold who can now deduct up to $40,000 in SALT at the individual level, the urgency of electing into a PTE regime is lower. However, for taxpayers above the threshold where the individual SALT deduction phases out, BAIT and PTET remain highly valuable strategies.

The bottom line: whether to elect into NJ BAIT or NY PTET in 2025 and beyond should be decided on a case-by-case basis, with the new SALT cap, each owner’s income level, and the entity structure all factored in. This isn’t a one-size-fits-all answer.

This Relief Is Temporary — Plan Accordingly

It’s worth being direct about one thing: the $40,000 cap is not permanent. It reverts to $10,000 in 2030 unless Congress extends it. That means the planning window is 2025 through 2029 — five years to make the most of this relief.

For NJ and NY taxpayers waiting for SALT relief, the time to act is now. That means reviewing your 2025 tax picture, modeling the impact of the new cap on your itemized deductions, and thinking strategically about income timing, mortgage interest, property taxes, and any PTE elections you may have in place.

What to Do Next

The SALT cap increase is the most significant change for NJ and NY individual taxpayers in the OBBBA — but it’s only part of a larger set of tax law changes taking effect now. Between the new income phaseouts, the 2030 sunset, and the interplay with PTE regimes, the planning implications are real and worth a dedicated conversation with your advisor.

Our tax team works with NJ and NY clients across real estate, family-owned businesses, and high-net-worth households to navigate exactly this kind of complexity. If you want to understand how the new SALT cap affects your 2025 return and beyond, we’re here to help. Contact a Wiss advisor today.