Who stands to benefit from the new SALT cap? High-earning homeowners in high-tax states.

Yahoo

07-07-2025

President Trump's massive new tax bill has a number of changes affecting homeowners. High earners who live in high-tax states are likely to get the biggest breaks.
The reason? The new law bumps the cap on state and local tax deductions from $10,000 to $40,000. A boosted SALT cap will make it more advantageous for many homeowners — especially those living in high-tax states like New York, New Jersey, and California — to start itemizing their taxes once again. The change could translate to thousands of dollars in annual tax savings for those homeowners, financial planners and tax professionals told Yahoo Finance.
Read more: Standard deduction vs. itemized — Which approach is best for you?
High earners, especially those who own expensive homes and pay hefty property taxes, can easily end up paying more than $10,000 in state and local taxes in some parts of the country. According to Realtor.com calculations, 40% of homes in New Jersey are taxed at over $10,000 a year, followed by 26% in New York and 19% in Connecticut and California.
But even some homeowners outside the coasts are poised to catch a break: In Illinois, 13.7% of properties are taxed at over $10,000, and in Texas, it's 12.4%.
Tax policy details seldom catch the attention of Patrick Huey's clients. But Huey, the owner of Victory Independent Planning in Naples, Fla., said his inbox started lighting up with questions last week, especially from clients in New York, Oregon, and California.
'With the new, much higher $40,000 cap, many of these clients will see a meaningful shift in their annual bottom line,' Huey said. 'For some, this is the first time in years that itemizing deductions will make sense again — especially those with larger mortgages.'
Prior to 2018, around a third of taxpayers itemized to take advantage of deductions for mortgage interest, state and local taxes, charitable contributions, and medical and education expenses. But President Trump's 2017 Tax Cuts and Jobs Act doubled the standard deduction and limited some itemizations, pushing more taxpayers toward the standard deduction.
Read more: Mortgage interest tax deduction — How it works and when it makes sense
In more recent years, only around 10% of taxpayers have opted to itemize their deductions. But a higher SALT cap is likely to make itemization make sense again for a broader swath of people.
Bigger mortgage, bigger benefits
Homeowners who itemize can also take advantage of the mortgage interest deduction, which is unchanged from the 2017 Tax Cuts and Jobs Act and allows interest deduction on the first $750,000 of a mortgage. The new law reinstated the mortgage insurance premium deduction, which treats premium payments as a form of mortgage interest. Most homeowners who put less than 20% down have to carry mortgage insurance until they build up a certain amount of equity.
Learn more: What is mortgage insurance, and how does it work?
Huey expects his clients who are working professionals with those large mortgages to benefit the most from the changes. Retirees, who tend to have paid off homes or smaller mortgage balances, are likely to be less impacted.
Mortgage interest payments are highest at the beginning of a loan, so a buyer who took on a $350,000 mortgage in 2015, when rates were around 4%, pays about $922 a month in interest today. Someone who received the same-sized mortgage last year, when rates were 7%, pays $2,023.
Temporary reprieve
While some homeowners can rejoice now, the SALT cap isn't permanent, unlike some other provisions in the law. The new higher limit goes into effect for the 2025 tax year and will rise 1% annually before reverting back to $10,000 in 2030.
And households making over $500,000 a year will see a lower cap that falls to $10,000 for the highest earners. While that level of income ranks a household around the top 1% of earners nationwide, it's not unusual for two professionals in certain high-cost-of-living cities.
'Many people that are near the $500,000 income threshold may want to explore ways to lower income via pretax retirement contributions, charitable giving, tax loss harvesting, etc. in order to fully benefit from the $40,000 SALT deduction increase,' said Jake Northrup, the founder of fee-only financial planning firm Experience Your Wealth in Bristol, R.I.
Another risk: The changes could ultimately spur additional homebuying demand in many of the regions that already have some of the tightest housing markets in the country, like San Jose, Calif., and the New York metro area.
'Raising the SALT cap creates a greater incentive to own in expensive, high-tax neighborhoods, such as affluent suburbs with high property taxes and good schools,' Realtor.com senior economist Jake Krimmel said in a statement. 'As demand for these neighborhoods rises, expect home prices to edge up there, too.'
Claire Boston is a Senior Reporter for Yahoo Finance covering housing, mortgages, and home insurance.
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