If you’ve ever felt frustrated by the $10,000 limit on how much state and local taxes (SALT) you can deduct, you’re not alone. That cap—set in 2017—has especially impacted people in high-tax states like California, New York, New Jersey, Minnesota, and Illinois. But now, there’s good news: the SALT cap is being raised.
Thanks to the newly passed One Big Beautiful Bill (OBBB), the SALT deduction cap is increasing to $40,000 starting in 2025. (1) For many pre-retirees and retirees, this opens the door to more meaningful deductions and smarter tax planning, especially for those with a mix of property taxes, state income taxes, and charitable giving.
Here’s what you need to know.
What Changed with the SALT Deduction?
Under the new law, the SALT deduction cap has been raised from $10,000 to $40,000 for tax years 2025 through 2029. (1) This allows taxpayers to deduct more of their property and state income taxes from their federal return.
However, there’s a catch: this new benefit phases out for people with modified adjusted gross income (MAGI) over $500,000. (1) That means retirees and pre-retirees with income below that threshold may see real relief, but higher earners could still be limited.
Why This Matters for Retirees and Pre-retirees
Previously, many people—especially those with good pensions, investment income, or property ownership—found that the $10,000 SALT cap made itemizing deductions almost pointless. Many defaulted to the standard deduction, even if they paid far more than $10,000 in taxes.
With the higher cap, itemizing becomes attractive again. It also allows for smarter planning around other deductions like:
- Mortgage interest
- Charitable donations
- Property taxes
OBBB’s New Charitable Giving Rule
Starting in 2026, OBBB adds a small hurdle for charitable deductions: a 0.5% adjusted gross income (AGI) floor. This means you can only deduct charitable donations that go beyond 0.5% of your income. For example, if your AGI is $200,000, only the portion of giving over $1,000 is deductible. (1)
This rule encourages more significant giving but limits deductions for smaller amounts. On the plus side, the 60% AGI limit for cash gifts to public charities is now permanent, making it easier to plan larger gifts over time.
Even if you don’t itemize, OBBB gives you a small charitable deduction—up to $1,000 for individuals and $2,000 for married couples filing jointly. (1)
Smart Strategies for the New Rules
With these changes, retirees and pre-retirees have some considerations to explore:
- Charitable bunching: Grouping donations into one year may push you above the new floor, making them fully deductible.
- Income timing: If your MAGI hovers around $500,000, delaying income or capital gains may help you stay under the phaseout threshold.
- Residency planning: If you’re near retirement and considering a move, this may be a good time to rethink where you live. No-income-tax states may still provide more long-term benefits.
- Review big-ticket deductions: Consider timing your property tax payments or state estimates to potentially make the most of the new $40,000 cap.
Moving Forward
The OBBB marks a major shift in tax policy, especially for those in high-tax states. With a higher SALT deduction cap and new charitable giving rules, retirees and pre-retirees have a window of opportunity to potentially improve their tax outlook—if they plan carefully.
Are you wondering whether you’ll benefit more from itemizing or the new standard deduction? Do you want to strategize your giving or income to stay under the new limits? Let’s schedule a time to talk. A simple conversation could help you make the most of these new tax rules.
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Source:
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(1) Wipfli LLP. “How the New OBBB SALT Deduction May Change Your Tax Strategy.” Wipfli Insights, 11 July 2024, https://www.wipfli.com/insights/articles/how-the-new-obbb-salt-deduction-may-change-your-tax-strategy
This information is being provided only as a general source of information and is not intended to be the primary basis for financial decisions. It should not be construed as advice designed to meet the particular needs of an individual situation. Please seek the guidance of a financial professional regarding your particular financial concerns. Consult with your tax advisor or attorney regarding specific tax issues. We do not provide tax or legal advice or services. Always consult with qualified tax and legal advisors concerning your own circumstances. We are not affiliated with or endorsed by any government agency, and do not provide tax or legal advice or services.
