Recent discussions in Congress regarding the State and Local Tax (SALT) deduction cap, which is currently set at $10,000 and is set to expire at the end of 2025, indicate a complex and evolving situation. Here's a summary of the latest proposals and their status:

Key Proposals & Status:

• House Ways and Means Committee Proposal   (May 12, 2025): The House Ways and Means Committee Republicans have advanced a proposal to raise the SALT deduction cap to $30,000 for households with incomes under $400,000. For single filers, the cap would be $15,000 with an income limit of $200,000. For incomes above these thresholds, the deduction would phase down by 20% for every dollar over the limit, but not below the current $10,000 cap for joint filers or $5,000 for singles. This proposal also includes limiting the "pass-through entity workaround" that many states introduced after the 2017 Tax Cuts and Jobs Act (TCJA).
• "SALT Caucus" Demands: A group of Republican lawmakers, particularly from high-tax states like New York, New Jersey, and California (often referred to as the "SALT Caucus"), are advocating for a significantly higher cap. They have pushed for limits as high as $62,000 for single filers and $124,000 for joint filers, with these limits indexed for inflation. Some reports indicate discussions of a $40,000 cap for individuals and $80,000 for joint filers as a potential compromise. These members have threatened to withhold their votes on broader tax legislation if a more substantial increase to the SALT cap isn't included.
• House Budget Committee Approval: As of May 18, 2025, the overall tax proposal, which includes the $30,000 SALT cap, secured approval from the House Budget Committee. This positions the bill for potential consideration and passage by the full House of Representatives in the coming week.
• Ongoing Negotiations: Negotiations are still active. House Speaker Mike Johnson has indicated that discussions over the deduction might run into the weekend, acknowledging the need to placate SALT caucus members. The cost of increasing the cap is a significant concern, with estimates for a full repeal reaching $1.2 trillion over ten years.
• Pass-through Entity Tax (PTET) Workarounds: The House proposal specifically targets and aims to restrict the use of state-level PTETs, which many pass-through businesses have used to bypass the federal SALT deduction limits. This would disallow deductions for state and local taxes generally required to be paid at the entity level, a significant departure from the TCJA's SALT provisions.

Context and Impact:

• The $10,000 SALT cap was introduced as part of the TCJA in 2017. Prior to that, there was no direct limit on SALT deductions for itemizing taxpayers, although the Alternative Minimum Tax (AMT) often served as an effective limitation for high-income earners.
• States with higher income and property taxes, predominantly blue states, have been most affected by the cap, leading to strong advocacy for its repeal or significant increase.
• Raising the SALT cap, even with income limits, is generally seen as benefiting higher-income taxpayers more than lower-income ones.
• The debate over the SALT cap is a major roadblock as Republicans seek to extend expiring provisions of the TCJA and advance other tax priorities.

The situation will be fluid as negotiations continue to secure enough votes for passage in the House, followed by the Senate.

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